Money Market Account

A money market account is a short-term investment that generates higher returns than a traditional savings account. They are ideal options for those who need quick access to the money while still providing the security of an investment. It is essentially a deposit account that invests in securities and pays the depositor based on the current market interest rates.

Money market accounts offer many options to investors. Despite their differences, there are key features that are similar to all of them. One of the most important is that all money market accounts are measured in the short term, usually up to 18 months. They also have competitive rates of return and can be accessed easily. Money market accounts are issued by governments, banks, or corporations and are available in Canadian dollars.

Investments in money market accounts are less than their face value. This means that they are initially bought at a discount and they mature at a future date. For example, a 30-day Treasury Bill worth $10,000 may be purchased for less than its value. Once it matures, the investor gets the principal and the interest it earned over the past 30 days. Finally, most of the investments are given in bearer form, which means they may be payable to the person in possession of them. An example of an investment is one made in the Government of Canada Treasury Bills. The purchase of bills comes with attractive interest rates and is guaranteed by the government. The terms of the bills can range from one month to one year. Investments in Canadian T-Bulls are essentially considered risk-free as long as they are held to maturity. The reason for this is that the Canadian government guarantees both the principal and interest, no matter what amount is invested. They may also be sold at market value at any time. Canadian T-Bills are denominated in both US and Canadian dollars and may be eligible for RSP/RRIF. Even investments made in US dollars are considered Canadian content for the purpose of the Registered Retirement Savings Plan.

Investors also need to recognize the difference between a money market and a regular deposit account. The former usually has minimum balance requirements that largely depend on the financial institution offering the account. Usually, it is measured in the thousands. There is also a monthly limit on the withdrawals an investor can make. If the number of allowable withdrawals is exceeded, the account may be penalized with additional fees.

Investors are given a register, which is similar to a checkbook register. The original amount deposited is recorded as well as the future deposits and withdrawals. The purpose of this requirement is to keep track of the funds found in the account. Usually, the bank sends a monthly statement that lists down all transactions and fees imposed on the account. It also indicates how much money it has earned. The act of checking the monthly statement against the register is called reconciling.