Choosing the best money market yields involves several steps before even looking at the yield. These decisions will help secure the most appropriate, and therefore the best yield, though not necessarily the highest paying. An investor should consider what type of money market to invest in, the tax status of the money market, and convenience, among other factors.
First, an investor must choose between a money market account and money market fund. In the United States, a money market account is usually offered through a bank. While it is similar to a savings account, it generally has a higher yield, but it may have higher minimum balance requirements and limited check-writing options. It is insured by the Federal Deposit Insurance Corporation (FDIC) up to certain dollar thresholds.
A money market fund is a type of mutual fund, and is not insured by the FDIC. It is managed to attempt to maintain a stable share price, and also to generate more attractive returns than a savings account. A fund is normally offered through a brokerage firm or other type of investment firm.
In terms of money market funds, another choice must be made between taxable and tax-free funds. With a tax-free fund, an investor will usually not have to pay certain taxes on any income earned, but it often yields less on average than a taxable money market. A financial firm or advisor can help determine whether a taxable or tax-free money market is more appropriate. In general, investors in higher tax brackets gain more benefit from a tax-free money market, while investors in lower to medium tax brackets derive a higher overall yield from a taxable fund.
Once these considerations are made, an investor can then conduct a comparison of money market yields. This is especially convenient on the Internet, where there are numerous web sites that aggregate and list the best yielding money markets. Often, those sites will indicate the companies through which the money markets are sold, the yield, minimum balances, and other important information to consider.
With a fund, the investor should look at the 7-day yield. With an account, the annual percentage yield is important. It is critical to note that the highest money market yields may not be appropriate to all investors. In general, a higher yielding money market has more qualifications and restrictions, such as larger account balances and fees.
Convenience is another important factor to consider. For example, many investors have many or all assets invested through one financial firm. When considering whether to add a money market to his or her portfolio, the investor will want to look at the money market yields but also consider the convenience factor of managing numerous and different statements and working through one or various companies.
Ultimately, an investor may want to secure the assistance of a financial advisor. An advisor can help determine whether a money market is truly an appropriate investment. He can also help choose the best and most appropriate money market yields.