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CHAPTER 7

account would. However, there is usually a minimum deposit, and the institution may charge a fee if your balance falls below the required minimum. Money market deposit accounts are federally insured, while money market mutual funds are not. The interest rates for these accounts tend to be less than they would be on other, longer-term, less liquid accounts, such as CDs. There is typically no surrender charge for withdrawing your money. Interest received on these accounts is taxed as ordinary income.

Money Market Mutual Funds These are among the most popular types of investments today. Money market funds invest in Treasury bills, jumbo CDs (CDs that have a certain minimum amount, such as $100,000), commercial paper, and other short-term, interest-bearing securities. The securi- ties held by money market funds tend to have a maturity between 30 and 90 days. Generally, the interest earned on money market funds is greater than that earned on savings and money market deposit accounts.

Some money market funds hold short-term municipal securities, which would entitle the money market fund investor to tax-exempt interest. Both taxable and tax-exempt funds usually offer check writ- ing and telephone-transfer (to another fund within the same fund family) privileges.

Money market funds may be offered through stock brokerage firms and mutual fund companies. Neither the Federal Deposit Insur- ance Corporation nor any other government agency guarantees an investment in a money market fund.

Certificates of Deposit CDs are deposits made to a bank or savings and loan institution for a specific period of time, usually a minimum of three to six months all the way up to 10 years. They are insured by the FDIC and offer a fixed rate of return and fixed principal value. While these are cash investments, they aren’t as liquid as a savings account or a money market fund. Because of that, they are known to pay a higher interest rate. Typically, CDs offer tiered interest rates: the more money you put in, the higher the interest rate will be. This also works for how-

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