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Wednesday, May 16, 2007

Higher interest on Money Market Fund

The money market funds in the USA earn a higher interest rate than time deposits in a bank.

Why?

The bank keep the difference. They justify it by saying that they provide a guarantee, which is backed by the Federal Deposit Insurance Scheme.

As the money market funds are invested in quite secure investments, many people are willing to forgo this guarantee and earn an higher interest rate from the money market funds.

A similar situation applies in Singapore. I expect more people to invest in money market funds in the future.

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