Does Standard & Poor’s Rating Impact Money Market Rates?
By financialtips4u, 15th Jan 2012 | Follow this author
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In August 2011, Standard & Poor reduced the United States’ credit rating from an AAA to an AA+ rating for the first time in nearly a century. This indicates slightly more risk and volatility when it comes to the nation’s creditworthiness and ability to meet debt obligations.
Does Standard & Poor’s Rating Impact Money Market Rates?
In August 2011, Standard & Poor reduced the United States’ credit rating from an AAA to an AA+ rating for the first time in nearly a century. This indicates slightly more risk and volatility when it comes to the nation’s creditworthiness and ability to meet debt obligations. Those who have funds tied up in money market accounts may be wondering if this adjustment will impact their earnings, while those considering this type of account may be worried that they’re about to be offered lower money market rates. Below, learn a few of the key points about how a nation’s credit rating might impact money markets:
1. If you’ve already locked in money market rates for a predetermined period of time, you’re guaranteed the promised interest on that account when it reaches maturity. While they’re in possession of your money, banks and brokerages can then invest it in global money market accounts on their own behalf. Whether they do well or poorly does not traditionally impact your investment or interest.
2. However, some types of money market accounts that are already in effect guarantee that they will only invest in funds at the AAA security level. The U.S. Securities and Exchange Commission only approves money market funds with very high credit ratings. Therefore, banks may need to cancel some agreements or realign their investment strategies to remain within their contractual obligations for how and where the money will be securely applied. Although it isn’t guaranteed or highly likely, some of your preexisting accounts may be affected.
3. If you’re looking for money market options along the lines of long-term treasury notes or bonds, it’s more likely that your financial plan can be impacted as banks sell off their portions of U.S. debt and shift pricing and money market rates. But some experts suggest that short-term agreements will remain stable. In fact, the country’s short-term rating remains strong according to Standard & Poor, even in the midst of an overall weakened economy. With long-term ratings debilitated, it may even strengthen the popularity of short-term open-market investments and lead to more competitive money market rates.
Before you agree to open any new accounts, be sure that you know exactly what the conditions are and confirm with the financial advisor who is brokering the deal that your money won’t be subject to the national economy or its credit rating. The bank alone should take responsibility for what it owes you in terms of your agreement. One way to be sure of what you’re getting into is by using a savings calculator to determine what a given rate works out to in terms of profit over a fixed amount of time. For instance, DiscoverBank.com offers a specific Money Market Interest Calculator that will give a near-exact overview of how your money will perform when you work with them.
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TM Murphy is a professional writer who lives in NYC. She currently specializes in fashion, beauty, marketing and finance articles. TM Murphy has been writing full-time since 2006, when she graduated with a B.A. in English from Northeastern University.
Comments
28th Jan 2012 (#)
well written
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29th Jan 2012 (#)
Good to heed the warning signs and make adjustments to suit us. Thanks for the info - siva
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1st Feb 2012 (#)
overall sentiments associated with sovereign ratings percolate down to money market instruments rather in a hazy fashion....I need to write an article on this..yeah ....nice pert information
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2nd Feb 2012 (#)
Thanks for the kinds words all. We do have to be careful in these trying times.
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