Borrower Beware

Investing Your Down Payment Money in Money Market Funds
Money market funds are among the three major forms of mutual funds - the others being those that concentrate on bonds (bond funds) and those that concentrate on stocks (equity funds). Most people consider mutual funds as being speculative investments, partly since they equate funds with typical stock market investing. Even so, the reality is that based on Securities and Exchange Commission limitations, money market funds may invest only in very safe securities, and investments on money funds are required to have an average maturity of ninety days or less. Generally, the short-term nature of those funds eliminates the risks of money market funds that tend to be sensitive to fluctuations in interest rates, in the way that bond funds and bond are.
Although certain bank savings accounts can give you reasonable interest rates, most pay less in interest rates than the most profitable money market funds. Why? Generally, banks are not as low-cost and efficient as money markets. If you wish to save through a dependable bank, just shop around. Credit unions and smaller savings and loans may give you more competitive profits than do the bigger banks that spend tons on ads and have branches on almost every corner. Always remember that more overhead signifies lower yields for your investments. In addition to better yields, most profitable money market funds provide check writing (then you can without much of an effort access your investments) and come in tax-free variants. If you are in the higher income tax bracket, the tax-free money market funds may allow you to generate a better yield compared with a money fund that has taxable interest. (The tax is only paid on money invested other than tax-sheltered retirement accounts.) If you are in a high tax, you must come out ahead by putting your money in nontaxable money market funds. If you live in a state with higher income taxes, you should consider any state money market funds, which pays larger interest that is free of both state and federal tax.
Dependable money market funds should offer redemption, telephone exchange and also automated, electronic exchange process with your current bank account. Automatic investment is practical for collecting your down payment for the house buying. For example, once per month your money can move instantly from the bank account into the money market fund. Due to the fact that certain money market funds are essentially investing in similar securities as the competitors, choose for a fund that only needs lean-and-mean expenses. Any operating expenses from your money funds, which are subtracted before dividends payment, are the leading factor in determining the yield. Like the expensive overhead on bank branches, high operating expenses on your money fund will give you acceptable yields. High quality money funds from a reliable mutual fund companies are usually yours for the asking with annual operating expenses of 1 percent or less.