What are General Purpose Money Market Funds

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General purpose money market accounts are the most common type. They can invest in any type of short-term, fixed-rate security. These could include:

Treasury bills

Short-term debts of companies -- commercial paper

Repurchase agreements


Yankee certicates of deposit (CDs issued by the U.S. branches of foreign banks.)

EuroDollar CDs (Certificates of deposit issued by foreign banks holding US dollars.)

Short-term off-shore securities

Bankers' acceptances (declining -- they peaked in 1984)

Auction Rate Securities (ARS) -- long-term securities made short-term by the Dutch auction process

Asset-Backed Commercial Paper (ABCP)

Money Market Funds Give Diversification Plus Convenience

To open a money market savings account, you must send in a specificied minimum amount, usually $2000-3000, but can be more. Sometimes you must maintain this as a minimum balance, sometimes not. You are allowed to write checks, but these can have minimum required amounts. Sometimes you are limited in how many checks a month you can write. Some allow unlimited checks. Also, some have debit cards that you can use at local ATM machines.

You can also have a specified amount of money wired into your regular checking account every month -- a systematic withdrawal plan (SWP).

Most money funds perform pretty much the same. Their returns don't vary by more than 50 basis points. If you find a high interest money market account with a yield substantially higher than others, be careful. That manager must be taking some high risks to obtain a higher return.

Lower Expenses is What Makes One Money Fund Better Than Others

Their returns are nearly equal, but some charge higher expenses. You shouldn't put your money into an account with an expense ratio higher than 0.5%. And some go as low as 0.25%.

The other factor is simple convenience. Many people open up an account at the money market deposit account offered by a particular mutual fund family they invest in, or through their brokerage or cash management account.

Although the short-term maturities of these securities makes them very safe, many people prefer even greater safety. They invest in U.S. government money market accounts

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