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Ask the expert: Debt-backed investments vs. money market accounts
Q: I have $50,000 in a Ford Interest Advantage account. I am getting a higher yield than on savings accounts and money market accounts, but, this account is not FDIC-insured. How safe is it? Should I get out or stay in? I want to put more money in.
A: This comes down to a question of the trade-off between risk and reward. According to the Ford Credit Investor Center, a Ford Interest Advantage account of $50,000 or more would currently pay a yield of 1.55 percent. This is certainly more than average money market rates, which according to the FDIC would currently yield 0.22 percent.
However, if you research the best savings accounts and money market accounts, you should find a number of options in excess of 1 percent; perhaps not as high as your 1.55 percent, but when all is said and done, you are probably gaining an advantage of just 0.25 percent to 0.40 percent.
Even differences of that size translate into real dollars, especially on large deposits. Still, you have to ask yourself what you are getting up for that little bit of extra yield.
As you correctly point out, a Ford Interest Advantage account is not insured by the FDIC. The Ford Credit Investor Center is also very forthright in explaining that their accounts represent investments in the debt securities of one company, and thus do not offer the diversification you would find in a mutual fund. In short, there is a clear contrast between this and a guaranteed investment, so you have to decide whether the extra 0.25 percent to 0.40 percent is worth that extra risk.
Risk is not inherently bad, but you have to define which of your assets are supposed to be taking on risk to get a return, and which are there for stability. Trouble often results when people start blurring the line between the two.
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