Slide 8 of 18
For that portion of a portfolio that must be liquid, most investors consider one or more of four places. Each has drawbacks and advantages.
Traditional bank savings accounts (savings, checking), are both guaranteed, up to certain limits, by the FDIC. However, traditional bank account returns are modest at best.
Certificates of deposit, on the other hand, are time deposits offered by banks, thrift institutions, and credit unions. They may offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties.
Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor, per institution and generally provide a fixed return, whereas the value of money market funds can fluctuate.
Money market funds are investment funds that seek to preserve the value of your investment at $1.00 a share. Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. It’s possible to lose money by investing in a money market fund. Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Treasury bills are actually debt-based instruments—investors lend money to the U.S. government and are paid a specific rate of return. Treasury bills are backed by the full faith and credit of the federal government as to the timely payment of principal and interest. If a Treasury bill is sold prior to maturity, there is the opportunity for a capital loss or gain, depending on the interest rate environment.