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Get the lowdown on meaning of 'money market'

What’s the difference between a money market ‘fund’ and ‘account’? Jean Chatzy explains. Plus: How to get the best severance deal.

Q: Can you explain the difference between a money market account and money market funds? I don't understand why I should put money into one over the other.

A: Except for the fact that they're both very safe investments, money market accounts and money market funds are actually very different products. Money market accounts are bank accounts (with FDIC protection for accounts up to $100,000 in value) that give you a return greater than you get on savings accounts.

But not all money market accounts are created equal. Shop around, as Web banks are noted for offering better rates than average. Note: If you think you'll need to get to your money quickly, these accounts are a good option because you can even write checks against your balance. However, on some money market accounts minimum deposits can run into the low thousands. And if you fall below the minimum balance, you could pay a penalty or have your interest rate adjusted downward.

Money market funds, unlike money market accounts, are mutual funds that invest in a menu of very safe securities (from treasury bills to high-quality commercial paper to bank CDs). While these do not have FDIC protection, they are not at all risky. They are tightly regulated by the SEC, which forces them to maintain an average maturity of the investments in their portfolio of no more than 90 days — protecting them from sharp movements in interest rates.

Most of these funds also offer unlimited check-writing privileges, but be sure to get wire-transfer privileges, as well, which ensures access to your money when you need it. The best taxable funds pay about the same as the best long-term CDs (about 5 percent), while the best tax-exempt funds pay about half that. The crucial factor in picking a money fund is fees. Some money market funds charge 1 percent or more in fees. Anything over one-half percent is too high. People in higher tax brackets should especially look at tax-exempt money market funds. When you take taxes into account, the real return may actually be greater.

Jean Chatzky’s Bottom Line
This week: Negotiating a better severance package
Is there a chance that you might be laid off? Some severance packages are non-negotiable, plain and simple, particularly in mass layoffs. But if you work for a small company, or if you're a fairly long-term or senior staffer, you shouldn't accept the first offer. Here are five things to ask for:

1: Ask for health coverage that continues after your severance runs out.

2: If you're close to vesting for your pension or stock options, see if you can get the company to keep you on the payroll—they call this "bridging" — until you get there.

3: Request one month of outplacement services for every year you've been with the company (and be specific about what sort of outplacement services you want: retraining, counseling, an office, and a phone).

4: Get references in writing before you leave, and make sure you know what the personnel office will say about you if a prospective employer calls.

5: Make sure you have a letter from the company confirming that you can claim unemployment. Your company may think it's doing you a favor by calling your layoff a resignation, but in order to apply for unemployment, you need to have been fired.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," will be released in September. Copyright ©2004. For more information, go to her Web site, .