A financial market where short-term lending or borrowing takes place.
What Is the Money Market?
Types of Money Market Instruments
Money Market Funds
The returns from money market funds are typically much lower than those from typical stock investments because they carry lower risks. But they are usually much higher — and safer — than bank or certificate of deposit accounts (CDs). In fact, money market funds don’t have FDIC insurance like CDs do; they’re covered by Securities Investor Protection Corporation (SIPC) insurance instead.
Money Market Accounts
Money market accounts are bank accounts that offer some of the conveniences of a checking account (ATM access, check writing) but with some added benefits not usually associated with traditional checking accounts.
A money market account is different from a savings account in two important ways:
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There’s usually a minimum deposit required to open the account.
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The interest rate earned on the balance in the account is often higher than what’s available for most savings accounts.
A money market account is similar to a checking account. Money market accounts often have restrictions on how frequently you can write checks or withdraw funds from ATMs.
These differences mean that money market accounts are an appealing option for people who want to save money but don’t have enough to meet the minimum balance requirements of traditional interest-bearing accounts, such as certificates of deposit or savings accounts.
Certificates of Deposits (CDs)
A certificate of deposit (CD) is a time deposit, meaning it is an investment that requires you to keep your money in the account for a certain period of time.
CD terms range from as little as three months to as long as 10 years. The longer the term, the higher the interest rate. However, there is typically a trade-off between interest rates and term length. A six-month CD with a lower deposit will usually have a higher interest rate than a three-year CD with a larger deposit, for example.