Looking for a way to park cash between trades and earn some income at the same time? Money market funds might be the solution you’re looking for. With money market funds, you can have cash on hand to buy stocks at any given moment, while also earning some yield along the way. Unlike a CD, which requires you to keep your money in the account for a specific period of time without withdrawal, money market funds do not have a lock-in period. This means you have immediate access to your funds.
According to money market tracker Crane Data, the average yield of the 100 largest money market funds is 5.19%, which is significantly higher than the national average rates on savings accounts. Money market funds keep their value and offer a higher yield compared to most savings and checking accounts.
It’s important to note that money market funds are not to be confused with money market accounts, and they are not backed by the Federal Deposit Insurance Corporation (FDIC). While there are high-yield savings and money market accounts with yields comparable to money market funds, the latter can be more accessible when placing trades since they sit in your brokerage account alongside your positions.
The tradeoff for the accessibility of money market funds is that the yield isn’t locked in, as the rate is constantly adjusted based on the maturity and reinvestment of the funds into newer issues. However, if you’re looking for some enhanced yield on cash that’s readily available, money market funds are still a great option.
In the past, there have been rare occurrences of extreme financial stress that resulted in funds not being readily available. However, money market funds are generally considered to be very low-risk investments. If your primary concern is locking in yield, you may need to consider other options such as CDs or bonds which offer similar yields to money market funds but require sacrificing immediate access to your cash.
Overall, money market funds can be a useful way to park your cash between trades while earning some income. Be sure to consult with your brokerage to understand your cash management options and ensure you are getting the best yield for your needs.
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