Definition of Treasury Backed Money Market Accounts
Most people are familiar with the generic term "money market," and use it as a blanket term to describe money market accounts in general. In reality, there are many different types of money market accounts, one of them being Treasury-backed money market accounts.
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Features
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Treasury bills, or T-bills, are the short-term security used in a treasury-backed money market account. Treasury bills are available with maturity dates of one, three, or six months with a minimum purchase price of $100. Treasury bills work in the same way as a savings bond in that the financial institution purchases the bill at a discount rate and face value is due at maturity.
Characteristics
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Treasury-backed money market accounts are money market accounts that contain short-term Treasury securities offered by the U.S. government. The Federal Deposit Insurance Corporation (FDIC) insures Treasury-backed money market accounts for up to $100,000.
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Availability
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Treasury-backed money market accounts can be set up at any bank in the same manner as a general money market account. The financial institution uses funds deposited into the Treasury money market account to purchase Treasury bills on your behalf.
Advantages
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This type of money market account is a good short-term savings tool with little risk and a guaranteed return on investment.
Disadvantages
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Treasury-backed money market accounts are not a good choice if you need to make periodic withdrawals from the account. Withdrawals require cashing in the Treasury bill before the maturity date and losing a portion of the accumulated interest. In addition, Treasury-backed money market accounts require investing a minimum deposit to open the account and a minimum balance to keep the account open.
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