Types of Money Market Securities

There are many alternative investments that investors seek out when looking for more opportunities. Money market securities are one of those alternative ways that investors rely on when looking for security in volatile economic times. The different types of money market securities that are offered to investors allow the investor to develop different strategies that promote a diversified portfolio. Treasury bills, commercial paper, certificates of deposits and bankers’ acceptances are all different type of money market securities. What type of money market securities the investor will choose depend on a number of factors. Most of these money market securities are typically 1 year investments.

Treasury bills are issued by the United States government that is considered short term investments. They are broken down into subsections that deal with different periods of term investments. 13 weeks, 26 weeks and 52 weeks are typically the time periods in which treasury bills are invested in. Treasury bills do not state their rate of interest, and gains are received by the investor being able to purchase them at a discount cost. Once the investment has matured, the investor will receive the full value of the Treasury bill instead of the discount price which they purchased them at.

Commercial paper is a type of money market security that deals with a promissory note. Large corporations and organizations will issue out promissory notes to their investors who typically mature anywhere from 1 day to 270 days. The SEC gets involved when the commercial paper has a maturity date longer than 270 days.  Investors who are looking for fewer risky investments will invest in commercial paper. The reason behind this is because many large financial institutions will guarantee the payoff of this type of money market security. The amount of banks that are involved with commercial paper money market securities creates a certain amount of liquidity that investors rely on.

Certificates of deposits, commonly referred to as CD’s, is another type of money market security that is issued by a wide variety of banking institutions. In fact, most banks offer many CD’s to their customers. CD’s are typically longer term investments than commercial paper and Treasury bill investments. Investors who are looking to invest over a period of up to 5 years will take advantage of the interest rates that are offered with CD’s. The investor will gain interest over the life of the CD at a fixed rate. Once the CD has matured, the principle and the interest will be paid to the investor.

Investors who are looking for more short term alternative money market securities will invest in bankers’ acceptances. This type of money market security deals with international trade, importing and exporting transactions. The investor has the choice to either cash in their bankers’ acceptance at the full maturity date or anytime during the life of the contract. However, withdrawals made before the maturity date will result in a discount. The risk is considered extremely low with this type of money market security. Investors looking for short term low risk money market securities will invest in bankers’ acceptances.

The biggest advantage that money market securities have is their stability and security during rough economic times. Investors who are looking to ride out these uncertain economic times are advised to invest in money market securities. They are also a way that investors can diversify their portfolio and reduce risks. The economy isn’t showing any signs of picking up anytime soon and many smart investors are taking this chance to create gains by investing in money market securities. Investing in a money market security can be established by going online and researching the many organizations that make these types of investments available.

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