Corporate MMAs are very similar to traditional MMAs in operation, but offer a higher yield. They are also less secure than traditional MMAs that are insured by the FDIC, because your investment is only backed by the corporation’s promise of repayment, and in the case of bankruptcy, you become essentially an unsecured creditor.
In a traditional MMA, the institution invests your money in low risk (US Govt. & Agencies, CDs, Commercial Paper) investments. Corporate MMAs invest in higher yielding investments, such as equipment leases and consumer loans.
Currently, GM is offering a yield of 2.75% for an investment of $50,000 or more. The average current yield for traditional MMAs is around 0.60%. Ford, GE, and Caterpillar are also offering corporate MMAs.
If you think that these accounts may fit into your overall investment strategy, approach it as if you were investing in bonds of the corporation, and base your decision not only on the current yield of the account but also the credit worthiness of the corporation.
