Money Market

a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over the counter and is wholesale. Various instruments exist, such as Treasury bills, Commercial Paper (Corporate Debt), bankers' acceptances, deposits, certificates of deposit (CD), bills of exchange, repurchase agreements, federal funds, and short-lived mortgage-, and asset-backed securities http://en.wikipedia.org/wiki/Money_market

A money market fund (also known as money market mutual fund) is an open-ended Mutual Fund that invests in short-term debt securities such as US Treasury bills and commercial paper.[1] Money market funds are widely (though not necessarily accurately) regarded as being as safe as bank deposits yet providing a higher yield. http://en.wikipedia.org/wiki/Money_market_fund

Banks in the United States offer savings and money market deposit accounts, but these shouldn't be confused with money mutual funds. These bank accounts offer higher yields than traditional passbook savings accounts, but often with higher minimum balance requirements and limited transactions. A money market account may refer to a money market mutual fund, a bank money market deposit account (MMDA) or a brokerage sweep free credit balance. http://en.wikipedia.org/wiki/Money_market_account

Hidden risk:

  • http://en.wikipedia.org/wiki/Money_market_fund#Systemic_Risk_and_Regulatory_Reform
  • Attempts to address this in 2012 failed: “It’s not Republicans versus Democrats,” a person involved in formulating the proposals told me. “It’s the Mutual Fund industry and its allies versus the American taxpayer.”
  • Jul'2014: some new rules are being passed, but
    • they exempt funds sold to individuals (vs institutions)
    • they exempt tax-free municipal funds
    • they include changes which would allow money managers to suspend redemptions by investors, or charge them fees to redeem during volatile periods (meaning when Debt Crisis 2008 happens again, you won't be able to get your money out right away or for free)
    • Conclusion: Keep your cash in short term T-bills. Yes, there is very little interest. We live in a ZIRP-world, and that's how it goes unfortunately. Or, put your short term money in FDIC- guaranteed bank CDs. The yield differential isn't worth taking the capital-loss risk inherent in money-market funds, and the FDIC is the only real insurance around.

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