 | | |
Money Markets and GICs: Safety First
| |
Like a savings account, money-market funds and their cousins, guaranteed investment contracts (GICs), pay you interest on your deposit. Money-market funds invest in safe, short-term investments such as treasury bills, government securities, certificates of deposit, and other highly liquid securities. That means your money, while not insured by the government, is extremely secure. However, that little bit of extra risk means money-market funds pay higher interest rates than savings accounts.
| |
|
GICs are slightly riskier than money-market funds, though they are still considered relatively risk-free. GICs are contracts from insurance companies that guarantee a certain interest rate. There is a slight risk that the insurance company could fail to make payments on time (or at all). That extra, but extremely small, risk means that GICs usually pay slightly higher interest rates than money-market funds.
| |
|
Money-market funds are offered both inside and outside of employer-sponsored retirement plans, while GICs are offered mainly within retirement plans. If you want an ultra-safe investment to preserve some of the money you've made, or if your plan doesn't offer a bond fund, a money-market fund or a GIC is a good option.
| |
|
That said, because they both are relatively safe investment vehicles, they offer fairly low returns and are vulnerable to inflation.
| |
|
