Alternatives to Money Market Funds

After you tie the knot, you may start looking for a safe place to put your money. Traditionally, investors have sought out money market funds as a low-risk investment opportunity. However, if you're just entering the investment market and the yields on money market funds are low, find an alternative to these funds that offer both safety and a good return.

About Money Market Funds

A money market fund is a mutual fund that invests in low-risk securities. When compared with other mutual funds, money market funds have lower risks. These funds pay dividends according to short-term market interest rates. Money market funds often invest in certificates of deposit or government securities, but they are not insured by the federal government. Money market funds maintain a net asset value of $1 per share, but the yield varies. Alternatives to money market funds include high-yield savings accounts, Treasury bonds and mortgage prepayments.

High-Yield Savings Accounts

A high-yield savings account insured by the Federal Deposit Insurance Corp. can provide yields equal to or greater than those of a money market fund. Savings accounts typically require a minimum deposit, and many also require holders to maintain a minimum balance in the account at all times. Savings accounts may pay fixed or variable interest rates. You can usually withdraw the money in a savings account without penalty, but many banks impose a limit on the number of withdrawals you can make each year.

Treasury Bonds

A Treasury bond is a debt security with a fixed interest rate. Most Treasury bonds mature in 10 years or more. These securities make interest payments on a semi-annual basis. Treasury bonds also offer tax benefits to holders. If you purchase a Treasury bond, you will owe federal income tax on the interest payments you receive, but you will be exempt from state income tax. The risk level of a Treasury bond is comparable to that of a money market fund.

Bond Funds

According to SmartMoney, bond funds are also a viable alternative to money market funds. A bond fund is a fund that invests primarily in debt securities, such as government or municipal bonds. Though fluctuations in the market can affect the yield of a bond fund, they often provide a better result than money market funds.

Extra Mortgage Payments

Though it may not be a traditional investment, making extra payments on your mortgage can provide you with a yield greater than or equal to the yield of a money market fund, Treasury bond or savings account. When you make an extra mortgage payment, the principal balance of your loan decreases, and you earn a yield equal to the interest rate on your mortgage.

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