Money Market Mutual Funds

Money Market Mutual Funds

Pros and cons of banks and money market mutual funds

Are bank deposits really safe?

The one thing money market mutual funds offer that banks can't

Pros and cons of banks and money market mutual funds

Advantages offered by banks

Physically close to saver

Smaller transaction amounts

Money market mutual funds often don't process checks with a face amount of less than $250

Marginally safer because of Federal Deposit Insurance Corp. (FDIC) insurance

Advantages offered by money market mutual funds

Higher yields

Ability to transfer money into and out of stock, bond and other mutual funds

Are bank deposits really safe?

Up to $100,000 of your money is insured at a bank but

If the bank declares bankruptcy you may lose interest earned on your deposit

In case of bankruptcy your money may be tied up for weeks or months

Over 800 banks and 600 savings and loans have failed over the last decade

Bank assets are often invested in risky, illiquid assets like credit card receivables and real estate loans

Money market mutual funds

Invest in very high quality short-term debt

Have an excellent track record

Only one money market mutual fund has ever given it's investors a capital loss

And that fund was not marketed to individuals

Can invest solely in short-term US Treasury bills which can be said to be safer than FDIC insurance

Called "US Government Securities" funds

The one thing money market mutual funds offer that banks can't

The interest you earn on all bank accounts is fully taxable

You can earn tax-exempt interest at the federal and state level by investing in tax-free money market mutual funds