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This week, a reader named Louis P. posed an interesting question about where to park cash between trades in order to make some extra income, while maintaining liquidity. Jim Cramer recommends money market funds as the best option for this purpose. Unlike a CD that restricts access to funds for a certain period, money market funds allow immediate withdrawals. They also offer higher yields compared to most savings and checking accounts, with the average yield being 5.19%, as per money market tracker Crane Data.
It’s important to note that money market funds are low-risk investments but are not backed the FDIC, unlike money market accounts. In times of financial stress, there have been instances where money market funds have failed to provide full access to funds, but these are rare events. The tradeoff for the enhanced yield offered money market funds is that the yield is not fixed and is subject to change based on the market.
While high-yield savings and money market accounts with similar yields to money market funds exist, the accessibility of money market funds makes them a better option for those who frequently trade stocks. Brokerages typically offer default money market funds for parking cash after selling stock shares. When setting up a money market fund, consider the expense ratio, which is usually minimal.
Overall, money market funds offer enhanced yield with readily available cash and are a suitable option for parking cash between trades. If you’re a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive trade alerts before Jim makes a trade, and there’s no fiduciary obligation or duty created receiving information from the investing club. Be sure to review the terms and conditions and privacy policy before investing.