Money Market Account Interest
When working with a Money Market account it is important to remember that it is very similar to using a standard savings account. The process that is involved with opening and using this type of account is almost identical. The way it works is that an investor will open a money market account at a bank or credit union, and then the financial institution will pay the investor interest based on deposits that are put into the account. In turn, the financial institution will issue bank loans to other individuals, but at a higher interest rate than they paid the investor.
One of the best aspects of a money market account is that the interest is compounded on a daily basis and paid to the investor monthly. It is important to remember that interest rates can vary between financial institutions. One of the major differences between a money market account and a more traditional savings or checking account is that the more money that is deposited, the higher the interest rate will be. It is important for the potential investor to first speak to their financial institution about fluctuations in interest rates, and always shop around for the best deals possible.
Banker’s Acceptance
Banker’s Acceptances are formed by non-financial institutions, which are also considered short-term credit investments. The advantage of this type of investment is that they are usually traded below face value in a secondary market, and that banks are guaranteed to make payments. The way this works is that a banker’s acceptance is like a negotiable time draft, which finances various transactions for corporations. This is usually used when a foreign trade partner’s creditworthiness is in question. This type of investment does not necessarily need to be held to maturity.
Treasury Bills
Treasury Bills are very popular as they are marketable money market securities. The reason for their popularity is because of their overall simplicity. They are short-term securities that mature one year after the date that they were issued. The interest that they incur is the difference between the purchase price and the price the investor receives at maturity. These are purchased on a non-competitive bid process, by the bidder receiving the full amount or a competitive amount where the bidder is required to specify his or her desired rate of return; if the desired rate of return is too high, the bidder will not receive any or all of their desired securities.
One reason that Treasury Bills are popular is their affordability and their risk free nature. They are also exempted from both state and local taxes. The one disadvantage is low returns on investment. The rate of return on a Treasury Bill is not as high as one would receive from other traditional investments. It is also important to remember that there are penalties for cashing out before the maturity date.
Treasury Bills are also sold cash management bills. This is done by re-opening sales of bills that have matured at the same time and are considered outstanding. Many large investors purchase this type of bill through a commercial book entry system. For those who are individual bidders, there is a non-competitive holding system called Treasury Direct that is designed for small investors who hold their investments until maturity.
If an investor wants to sell their bill before it matures, this can only be done if he or she first transfers their securities to the commercial book entry system. This can only happen with a depository institution that also holds an account with the Federal Reserve Bank.
This article was edited by Daniel Tobin, a junior editor for Ratelines.com.
Since 2004, Ratelines.com has been an independent and objective source for reliable information about the finance industry, cd rates and savings accounts.
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Article Source: http://www.articlesbase.com/ – What Should You In Invest In? Money Market, Banker’s Acceptance Or Treasury Bills
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