How Safe Are High Yield Money Market Accounts?

In the economy that we are in, many investors are choosing to invest in high yield money market accounts. But just how safe are the investment vehicles. Let's have a look.

When people desire to create wealth out of money they possess, but do not have the time and the talent to invest it profitably, they go to a financial coach for advice. The advice the coach gives them would likely include putting funds in so-called high yield money market accounts.

High yield? Money market accounts? They are nice to hear, but these terms may sound Greek to the ordinary citizens. To begin with, what is this market anyway?

Imagine the money market as a place where banks, investment houses, money dealers, and other similar institutions come together to borrow or lend. The concept is like your neighborhood market where vendors and town residents meet to buy or sell household goods and services.

In this market you find on one hand borrowers who have short-term (less than a year) financial opportunities to grab but are short in funds, and on the other, lenders who have excess cash that they want to grow.

Not all institutions that wish to borrow can participate in the market, but only those who are certified to have strong credit rating. This is very important because borrowings are often unsecured; they are not backed up by collaterals but only by the borrower's good name.

If misfortune befalls a borrower, the lender also suffers. The market has rules and safeguards to protect participants from such misfortunes, but cannot guarantee that they will never happen.

Generally accepted legal documents are used as evidence of money market transactions. They are called financial instruments, or simply "paper". They include: CP (commercial paper), T-bills(Treasury bills), CDs (certificates of deposit), bankers' acceptances. These are the goods that are bought and sold in this market. 

Click here to learn more about high yield money market accounts and free checking accounts. 

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