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Improve Money Market Rates with Mutual Funds

If you are an investor who uses money market accounts as part of your investment strategy, you are familiar with the search for the highest interest rates offered. Banks want your business so it’s a never ending competition, which results in an ever changing market. A few little tricks can help you get the best rates possible.

First, let’s talk about the difference between a money market mutual fund and a regular money market account. A basic money market account is a savings account that places some restrictions on minimum investment and number of monthly transactions. In exchange for agreeing to these restrictions, banks pay you a higher interest rate than for a normal savings account. The bank also accepts the risk for anything they decide to use your money for. A money market mutual fund is a very conservative investment instrument offered by brokerages or banks. The money you invest into the account will be reinvested into the stock market. This allows for an even greater return, but also places more restrictions on the movement of your money. You also must accept that your money is not guaranteed and losses are possible, though rare.

In a money market fund, the money is invested in a variety of low risk securities such as government bonds, CDs and treasury bills. Though you will not earn as much as you would had you invested the money directly into corporate stocks and bonds, there is very little risk that you will lose your money.

Since the institution needs to have access to your money so they can invest it, you will be restricted in the number of withdrawals and their amounts. A minimum balance will have to be maintained. If you need quick access to your money, these funds are probably not for you.

Some of the highest interest rates for money market funds can be found with brokerage firms. They almost always outperform funds offered by banks since they have the know how to make somewhat riskier and more diversified investments. Before deciding on a fund, make sure you shop around for the best rates.