This type demands a minimum balance deposit and with a limited number of transactions per month only. There ' s an easy access to your money through ATM ' s, checks and cash transfers here too and just like any other type of bank accounts, money market deposit accounts are also insured by FDIC. However, due to the conveniences it offers, the return rates are low( compared to CD) and penalties are present if you don ' t follow the minimum balance required or exceeded the limited number of transactions.
MONEY MARKET FUNDS
Money market funds are offered by brokerage firms and mutual funds institutions. These funds comprised of high liquidity and safe securities. It is also easy to access your money in this type of investment with a higher return rate compared to money market deposit accounts. However, money market funds are not covered by FDIC and the net asset value of the share price may go higher than $ 1.
CERTIFICATES OF DEPOSITS( CDs)
Debt instruments like CDs have specified maturity of 3 months to 5 years. Aside from banks, CDs can also be issued by brokerage firms. Certificate of deposits( CDs) is FDIC insured with high return rates than money markets depending on the maturity period set. The maturity date is fixed which means that you cannot get your hands on your money not until the maturity expires. You will have to pay a penalty if you want to get you money sooner than the maturity date.
US GOVERNMENT BILLS OR NOTES
These are offered by US governments and considered as the safest investment today, however, you can ' t get high returns here compared to money markets and CDs. Moreover, your original investment cannot be redeemed if you decided on not continuing the deal before the maturity ends. Treasury bills have maturity expiration of less than a year while treasury notes are fixed between 2 and 10 years. As this is offered by US governments, these types of investment are exempted from state and local taxes. You can buy one of these securities directly at the TreasuryDirect free of commission.
I BONDS
These savings bonds are offered by the U. S. Department of the Treasury and are endorsed by the US government which yields inflation-adjusted semiannual returns. This can be considered as one of the safest bonds as it is backed up by the US government and protects you from inflation. One advantage of these bonds is that they are available in affordable denominations( from $ 50 to $ 10,000) and are exempt from local and state taxes. The only drawback here is that I Bonds are subject to a 3-month interest penalty if you decided to claim it within less than 5 years of issue date.
MUNICIPAL BONDS
Municipal bonds are also called“ munis”. It is as safe as US Securities and exempted from federal, local and state taxes especially if you reside in the town that issued the bond. These debt securities are offered for the purpose of financing capital projects such as building schools, highways and other public infrastructure projects. Even though“ munis” have lower interest rates, high-income investors seek this kind of investment because of its tax-friendly returns. And like some other type of investments listed above, if you decided to redeem your money before the maturity date, redeeming your original invested amount wouldn’ t be possible.
CORPORATE BONDS
These are debt security issued by firms and corporation to finance various future operations. Compared to government securities, CD’ s and money markets, corporate bonds often give higher returns however, the corporate bonds could suspend interest payments. If you plan on redeeming your bond before the maturity date, then you might not collect all the invested money you put. Moreover, commission fees are used to buy these bonds.
BOND FUNDS