Who Gains When Investing in a Money Market Account?
Money market accounts are a form of investment that many people choose when they do not want to worry about their investments or plan out all the instruments or securities they want to use. They remain a popular option for people who want to reliably grow their funds without direct involvement. As a result, several different parties benefit when people invest in money market accounts. This depends not only on the securities involved, but on the type of money market.
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Investors
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Money market investment is designed to help investors gain. In the case of money markets, investors gain slowly -- growth rates are low, usually only a small percentage above inflation. However, these rates can lead to eventual profit, especially dependable profit. Money markets tend to be very low risk, which means that it is more likely they will gain over the long term without dropping in value and causing investor anxiety.
Money Market Deposit Accounts
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There are two primary types of money market investments. The first is a money market deposit account, which is created by a bank as a deposit account for customers. These accounts are not tied to particular investments -- the bank will, of course, use the funds to invest in what it wants, but it will also guarantee a rate of return on the account. The funds in the account are protected by FDIC insurance. In this case, the bank is the other primary beneficiary, since it receives funds from the customers to grow its own business.
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Money Market Funds
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Money market funds are a more direct form of investment in which brokers or mutual fund companies offer an investment account that spends money on very liquid yet highly reliable securities like government bonds and short-term commercial bonds. In this case, the investment leads to gains for the companies that the account buys bonds from. The government does not typically gain much from selling securities, but it does allow government organizations a greater amount of control over bond rates.
Managers
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In the case of money market funds, the fund needs a manager or broker to decide what securities to invest in and when. Sometimes these brokers take a certain percentage of the profit, and sometimes they are paid a flat rate, depending on how the fund is set up. These fund managers benefit indirectly from the investment in the account and demand for similar accounts.
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