Cash Equivalents Risks and Rewards

Savings deposits, CDs and money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC), a federal government agency, for up to $250,000 per depositor. Money market mutual funds are not FDIC insured.

A big risk to cash equivalents is inflation. If inflation occurs at a higher rate than what you are earning from your cash equivalents, your money loses its purchasing power. For example, if you earn 1% from a savings account and inflation is running at 2%, your money isn't keeping up with the rising cost of goods and services. A deposit of $100 in your savings account will grow to $101 by the end of the year, but an item that costs $100 today will increase in price to $102 over the same time period.

AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

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