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Old 12-16-2005, 07:42 PM
Uglyowl Uglyowl is offline
Join Date: Nov 2002
Posts: 66
Default Re: How Does a Money Market Account Work?

Money market accounts invest in very short term paper... there is a very small risk, but it is not secured, thus disclaimers.

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I think the original poster is referring to the bank vehicle called "money markets" that are just a savings account with a different name. For example, the ING Orange account is still FDIC insured and have no risk. (As opposed to a money market mutual fund)

Using ING and Emigrant as examples, how much do these companies figure to profit on deposits if they are giving out 3.75-4%?

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These guys rely more on volumn and very low overhead as they are operating at a much smaller interest margin as a typical bank.

Still regardless the average loan earns slightly over 6% when factoring in default risk.

Also, how do these companies make money on the deposits while protecting against the short term need for withdrawals etc ?

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Banks do extensive analysis with asset liablity management. These include lots of "what-ifs" scenerios and how it will effect liquidity, profits, and capital ratios.

Here is a very basic description.

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