In the wake of the recent recession, the American people have become disillusioned with several market related investment options. Many previously ‘sound’ investments have spiraled down to touch all time lows, wiping out the life time savings of many.
For instance the houses, which were traditionally considered good assets, got heavily devalued during the crash and are yet to catch up with their pre-recession values. With fears of a second recession lurking in the wings, the dynamics of the investment scenario have significantly changed.
The economic downturn has also changed the investment and savings perspective dramatically across the US. While confidence in investments is returning, investors are also more cautious than ever before with their money.
Safety seems to be the key concern while investing rather than yield. Given this, the investment options which are backed by the FDIC or which are safe instruments are finding increased favor. Here is an overview of some such safe and rewarding investment options.
Table of Contents
Types of Bank Investments
Certificate of Deposit
Types of IRAs
401k Plans
Types of Bond Investments
Fixed Income Investing
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Money Market Accounts
A money market account is a type of savings or deposit account, which earns better interest on the money deposited and has higher minimum balance requirement. There is also a limitation on the number of withdrawals you can make from the account in a month.
Banks and credit unions offer money market accounts (MMAs) as they earn interest on the funds parked in them. When you deposit funds in a money market account, it is used for investments in government and corporate securities. This is why such accounts are also called money market deposit accounts.
The interest your money earns in a MMA is usually calculated daily with the total amount shown in your account once a month. You can deposit money today into a MMA and withdraw tomorrow without much hassle. As is evident, the longer your money stays in a MMA the more the interest it accumulates.
A MMA is a good savings option because of the higher interest rate that it offers compared to a typical savings account with a bank. However, the higher yield brings its own set of restrictions on the account. You may be limited to making only 6 withdrawals a month of which just 3 can be made by check. In addition, a MMA usually comes with a higher minimum balance requirement than a savings accounts. The aim of a MMA is to encourage investment rather than spending, and the conditions are designed towards this goal.
In spite of these limitations, a MMA is a sound investment because of its risk free nature. While the Federal Deposit Insurance Corp. insures the MMAs offered by banks, the National Credit Union Administration insures credit union MMAs. During periods of economic uncertainty, many investors choose MMAs as a safe haven for their funds because of the government backing that these accounts enjoy.
Investors in MMAs should however be aware of high fees that may be imposed on them if the withdrawal limits are exceeded. Also, it is necessary to factor in the income tax payable on the interest earned from these accounts to arrive at the net yield, when comparing them to other investment options.
