Money Market Fund Rates In Real Terms
Fixed Income Products
The money market doesn’t only help in the storage of short-term surplus funds but also helps in lowering short term deficits. They help the central bank in regulating liquidity in the economy. Money markets help short-term fund users to fulfill their needs at reasonable costs.
| Product | Income potential | Growth potential | Principal preservation and liquidity | Fees or expense ratios | Minimum investment and diversification |
|---|---|---|---|---|---|
| Individual bonds | Fixed-rate bonds offer periodic payments of fixed amounts. Other types of bonds may vary their payments. | None if bought at par value and held to maturity. Bonds can be purchased and sold in the secondary market prior to maturity at a profit or loss. | Initial investment returned at maturity subject to the credit-worthiness of the issuer. Most bonds can be bought and sold on the secondary market; that sale can result in a profit or loss. | Online secondary Treasury purchases are free;1 other bonds purchased on the secondary market are $1 per bond. | Generally $1,000 to $5,000, depending on the type of bond, though you'll need to purchase a broad array of bonds to diversify. |
| Bond funds | Regular payments, though amounts vary depending on the underlying bond holdings of the fund. | Potential for capital appreciation | Unlike individual bonds, most bond funds do not have a maturity date, so your principal will fluctuate. Funds can be bought and sold daily. | Mutual funds charge a fee represented by the expense ratio, which reflects operating expenses expressed as a percentage of the fund's average net assets.2 | |
| Brokered certificates of deposit (CDs) | Interest rates are stated at the time of issuance; payments are generally made monthly, semiannually or at maturity. Principal is returned at the CD's maturity. | None if bought at par value and held to maturity. CDs can be purchased and sold in the secondary market prior to maturity at a profit or loss. | Your principal is insured against bank failure by the FDIC up to applicable FDIC limits.3 Most brokered CDs can be bought and sold prior to maturity at a profit or loss, although the secondary market may be limited. | No fees for most new issues | $1,000— Diversification becomes important for investments that exceed FDIC coverage limits. |
| Money market funds | Regular payments, variable amounts | Minimal; the objective of a money market fund is capital preservation, though some growth is possible. | Money market funds aim to protect your principal, but they are not insured and do not come with any guarantee. You can buy or sell shares in a money market fund daily. | 0.18%–0.55% in gross expense ratio per year2 | Many funds with $0 minimum investment - otherwise $10,000 to $10 million. |
| Fixed income ETFs | Regular payments, though amounts vary depending on the underlying holdings of the fund. | Potential for capital appreciation | Unlike individual bonds, ETFs do not have a maturity date. Investment return and principal value will fluctuate. | Average net expense ratio 0.33% | No minimum—one share of any ETF may be purchased. ETFs have a constantly changing portfolio of bonds, offering the potential for diversification. |
| Fixed income annuities4 | Income for life for both immediate and deferred fixed income annuities (or optionally, period certain for immediate fixed income annuities); income amount is stated at purchase. | None, except with optional cost of living adjustments | Issuer guarantees income for the term of the annuity, often the investor's lifespan, subject to the claims-paying ability of the insurer. Initial investment generally not accessible. | Fees included in purchase price; no annual fee. | $10,000 |
| Deferred Fixed Annuities4 | Fixed rate of return set at time of purchase. Interest accrues daily and paid at the end of the specified term. | Your contract receives a pre-determined rate and grows at that rate for the term you select. | Issuer guarantees rates for the term of the annuity, subject to the claims-paying ability of the insurer. Most have provisions to withdraw a stated amount without surrender charges each year. Withdrawals before term end and above stated allowance subject to surrender charges. Compare Deferred Fixed Annuities | No annual fee | 3- to 9-year terms are available; minimum to open is $5,000 to $50,000 (varies by insurance company). |
Financial stocks have staged a remarkable rebound. Barron’s interviewed Chris Davis about his strong conviction in the sector, and why we may be setting up for a decade of revaluation for the group.
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