How to Protect Money Invested in Money Market Accounts
Many financial institutions and banks offer money market investment accounts to consumers. Unlike certificates of deposits and traditional investment accounts, individuals can move money in and out of a money market account without penalty. Learn how to protect money invested in money market accounts in order to earn interest on your finances while retaining flexibility regarding how you deposit and withdraw money.
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Understand how a money market account works. Money market accounts are technically short-term mutual funds. The bank pools the money you invested in the money market account with the deposits from other consumers in order to buy short term corporate or government bonds. In contrast to traditional mutual funds, money invested in money market accounts is kept at an asset value of $1 USD, assuring customers of their investment's stability.
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Recognize the risks associated with investing money in money market funds. While the financial risk of money markets are substantially lower than traditional stock markets, investors can still lose money if they do not protect their investments. Money markets lose money any time the net asset value drops below $1. The main influence that could cause a money market fund to lose money is if the bonds it purchased loses value. The second greatest cause would be a situation in which those investing in a money market fund decide to withdraw all of their money all at once. Due to the nature of bonds, the money market would in turn have to sell its own assets at a loss to support the withdrawals.
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Verify that the money invested in money market accounts is protected with FDIC insurance. This is the best way to protect money invested. Money market accounts are not required to be FDIC insured. Ask your bank or financial institution if the money market account is protected with FDIC insurance, or review your money market account's monthly prospectus to review the terms in which your money is invested.
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Deposit your investment money only in money market accounts that have a high rating on the S&P or similar mutual fund rating organizations. Protect money invested, lower risk and maximize your potential investment return by only using money market accounts that have the highest S&P ratings.
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Request a list of the money market account's holdings from the U.S. Securities and Exchange Commission (SEC). Review the list and avoid investing in money market accounts that hold investments in corporations that have recently encountered negative financial situations (bankruptcies, corporate takeovers or falling stock values).
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