Money market mutual funds are another alternative to bank savings accounts. MMMFs are not bank instruments; they are actually funds managed by mutual fund companies. These companies pool funds from many investors to buy a portfolio of securities. Because they are working with pooled assets, mutual fund companies can usually purchase higher-yielding investments that give higher returns to investors. Investments can be either taxable securities or tax-advantaged securities such a municipal bonds which are federal tax-free.

MMMFs are liquid—you can generally deposit and withdraw money every day. While the increased liquidity results in lower interest rates, rates are still competitive (the rates depend on the funds). Minimum balances in MMMFs are much higher than checking or savings accounts and may exceed $3,000. While MMMFs are generally considered safe, they are not FDIC or NCUA insured. Other features of this account may include limited check-writing benefits. MMMFs are bought by the share and charge an administrative fee. There are no penalties for early withdrawal. Information on money market mutual funds can be found from various brokers and from http://www.Bankrate.com.

MMMF’s may be either taxable or tax-free depending on the type of securities and the location of the securities the MMMF invests in. If the MMMF invests in only government securities, the interest earned (but not the capital gains) is state tax free. If the MMMF invests only in municipal securities, the interest is federal tax free. If the MMMF invests only in municipal securities from your state, the interest may be both federal and state tax free (for states that have state taxes).