September 8th, 2011 | 
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Money market accounts offer various instruments that allow you to take on multiple forms of investment. The instruments are unique and all offer distinct benefits. The hard part is trying to decide which instrument is good for you.
To help you make your decision, let’s look briefly at some:
Treasury Bill (T-Bill)
T-Bills are government-issued certificates offered to investors at bidding auctions in exchange for the promise to pay back a particular sum within a specific period of time. They are considered to be one of the safest instruments of money market accounts available. But while they come with zero risks, their returns are not as attractive. This is because they are issued at a price that is less than their face value so that once they mature within the short time frame (typically 3, 6 or 12 months) they will be paid back at their full face value.
Certificate of Deposit (CD)
Like the T-Bill, the CD is a short-term borrowing tool, but instead of the government issuing it, banks do so. In return for an investment that you make, you are issued a promissory note (certificate) that certifies your entitlement to a return on your money over a specified period of time and at a fixed interest rate. Your CD may hold a term of anywhere from 3 months to 5 years, during which you will not have access to your funds, which may not work well if you want to retrieve money before the term ends penalty-free.
Commercial Paper
Instead of taking out a bank loan, many companies decide to go with commercial paper. Also a short-term investment, commercial paper is an unsecured promissory note issued by a corporation or financial institution at a discount of 10% of the face value. It is a way to get a short-term loan to finance accounts receivables, inventories, or short-term liabilities for usually a period of anywhere from one to 270 days. Then when it is paid back, it will pay at face value.
Repurchase Agreements
Used for “overnight” borrowing, these are short-term loans in which two parties agree to sell and repurchase the same security. In other words, the seller sells the securities, agreeing to repurchase them at a specified date, while the buyer agrees to resell them to the seller on the same date. Upon resell, the buyer receives a return on the money at a predetermined interest rate.
These are just a few of the instruments of money market accounts available. By more closely studying what they are, you can determine which will best serve your financial needs – whether it might be a certificate of deposits, T-Bill, commercial paper, or repurchase agreements.
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