How to Invest in Money Markets

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When investing in money markets, consider the safety of the investment, determine if a short-term or long-term investment is desired and find money markets at banks, custodians and investment companies. Research money markets to find out if they fit the investor's needs with investing advice from a certified financial planner in this free video on personal finance.

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Video Transcript

In todays market there has even been some concerns about the safety of money markets. Money markets have traditionally been an investment tool that people put in a dollar today, earn a little interest and get their dollar back tomorrow. There's never really been any concern on most peoples minds that they may not get their money back. It's very important that you can consider the safety of your money market. The idea in investing in a money market is if you're going to need your money in the short term and you want to make sure that it's liquid and there for you tomorrow. The difference would be if you're investing in long term and looking for retirement investments you probably want something that's going to earn a little bit more interest. One of the things to consider in looking at the safety of money markets is what are the investments underneath the money markets, are they primarily U.S. Treasuries, are they government short term bonds or are they higher risk bonds from companies. Generally you'll want to go with something a little bit safer in your money market rather than a higher risk type bond that can generate more interest, but there's always that risk that you might not get your money back. Money markets can be found in a variety of places, banks, custodians and investment companies such as Charles Schwab, Fan Guard, AmeriTrade. A couple other things to also consider when investing in money markets is, is the interest that you receive going to be taxable, in most cases yes it will be. There are money markets that are considered tax-free, you have to research the different institutions to find those and read the information in the prospectus. A couple of other things to consider when you're finalizing your review on how to utilize a money market is what are the expense ratios within the money market. It's important to consider a money market that has low expense ratios, this means a higher interest rate to you in the end and you'll have the opportunity to earn a little bit more money. In addition you don't always want to think about what's the highest interest rate you can get. Many times there are underlined requirements to that, for example you may have to have a minimum of a certain amount of money to get a high interest rate. So keep these things in mind when you're considering where you want to house your money market.

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