Money market rates, also termed money market mutual fund rates, are a measure of the return received on an investment placed in money market funds. Money market funds are attractive for short term investing because money market funds are very liquid, the commodity being money itself. The Securities and Exchange Commission requires that the securities be diversified, short maturing, and high credit fixed income debt instruments. The Federal Deposit Insurance Corporation, or FDIC, protects money held by bank money market accounts, whereas even the best money market mutual funds are not insured by this government organization.
The interest rate issuers pay on the fund holdings must be weighed with the level of risk. The best money market mutual funds are managed to strike a perfect balance. Anticipated profits due to good money market mutual fund rates are not considered capital gains and losses, but dividends.
Money market mutual funds rates are reported as annualized yields every 7 days. The managers of the best money market mutual funds share a strategy held by all money market funds, that of maintaining the Net Asset Value, or NAV, per share at $1. To calculate money market rates accurately, the shareholder must deduct any and all expenses and fees associated with doing business.
Money market mutual funds rates take in to account costs for advising, conducting transactions, marketing, and distribution, along with operating expenses. Shareholders can see these charges, which reduce money market mutual funds rates, as purchase fees, redemption fees, exchange fees, management fees, account fees, or transaction costs. The type and quantity of shares held may be part of the fund managers’ calculations when applying charges, termed breakpoints, which must be outlined in print if used. Disclosures of money market mutual fund rates can employ terminology such as no-load, front end load, back end load, or low or level load, referring to charges incurred when buying or selling. Money market rates are not necessarily higher if the fund is no-load because expenses can be passed along as one of the many other itemized charges.
A final measure of an investment is to calculate the percentage of the return consumed by charges. High money market rates and low fees is the best scenario.