The Savings Account
The savings account allows you great flexibility and liquidity, but also a low rate of return, really low these days. As when investing for yourself, you don't want to use a savings account as a major investment instrument. It has its time and place, mostly for keeping funds liquid that you expect to use in a short time.

The Now Account
Negotiable Order of Withdrawal (checking with interest) offered today gives you a decent market rate and the convenience of unlimited access to your cash. Interest rates fluctuate daily, as determined by the bank. Interest accrues on available balances, compounds daily and is automatically reinvested monthly for maximum yield.  It, like the savings account and the Money Market, is extremely safe.

The Money Market Account
Insured Money Market Accounts are similar to checking accounts that earn interest. They require a small opening deposit, usually in the neighborhood of $2,500, but you earn higher interest rates as your available funds balance increases. You're allowed to write a very limited number of checks per month (usual minimum is $500) on the account or make withdrawals in person or with a bank card.

Commercial Paper
Commercial Paper is a short-term investment. It keeps funds liquid and flexible and offers competitive, market interest rates. Generally, it is issued with maturities ranging from overnight to 270 days. You can redeem the paper prior to maturity, but not without penalty, usually consisting of having to accept a lesser interest rate than what you could have earned if you kept your funds intact. A minimum amount you'd want to consider to invest in Commercial Paper is usually $25,000. There are strict rules of whose Commercial Paper you can buy, as I mentioned earlier. The Paper must be rated in the three highest classifications established by at least two standard rating services and mature not later than 180 days from the purchase date. The purchases must not exceed 10 percent of the corporation's outstanding obligations.

The State Treasurers' Investment Pool
The Illinois Public Treasurers' Investment Pool, or IPTIP, is a vehicle for short-term funds investing. The Pool's sole reason for being is to benefit Illinois governmental organizations as an addition to their regular banking relationships. There are no minimum deposit or withdrawal levels. There is a prior day notice for transactions, however.

Money Market Mutual Funds
Money Market Mutual Funds combine the benefits of a money market account -- flexibility to increase your balance whenever you want to make withdrawals -- with the returns of mutual funds. Handled similarly to the money market account, with this investment, your money is pooled with those of other investors and those collected funds are then invested in a variety of securities. This is called the fund's portfolio. Each share in the fund reflects a percentage of ownership in all the fund's securities. Net earnings are distributed to investors in proportion to the number of shares owned. The value of your shares will change with market conditions. Generally, these long term investments aren't insured by the FDIC, guaranteed by, nor are they obligations of the issuing financial institution.

Even without these guarantees, local governments are allowed to invest in Money Market Mutual Funds if they are registered under the Investment Company Act of 1940. Your portfolio must be limited to bonds, notes, certificates of indebtedness, treasury bills, or other securities, whose principal and interest are guaranteed by the federal government. So, what is meant to be a long-term investment can be used as a short-term security with a money market rate of return.

Repurchase Agreements
Repurchase Agreements are short-term investments that represent a purchase of an interest in a U.S. Treasury and/or Federal Agency Security at a competitive fixed rate for a period of one to 30 days. Currently, many banks are offering "term" Repos for longer periods. The financial institution the local government has transferred money to for investing the Repos agrees to repurchase the securities at a future date for the principal amount invested plus interest earned. Maturity can vary from overnight agreements to up to one year. They are similar to collateralized loans --the value of the securities received should equal or exceed the amount of the cash transferred. Check Public Act 84-958 (amending Ill. Rev. Stat. 1989, ch. 84, par.902), which outlines the requirement of investment in a repurchase agreement.

Certificates of Deposit
Certificates of Deposit are time deposits that allow for flexibility in maturity, rates and deposits. Fixed maturities can range from 14 days to 20 years. Interest is calculated on a 365-day simple interest basis, or a 365 day basis. (You earn more money on 360 day rate than 365. If your investment is earning interest at 3% for 30 days, computed on a 360 day rate, your yield is actually 3.04 rather than the 3.0 someone with the same investment based on a 365-day rate.) Interest rates are subject to market conditions, but the later the maturity you choose, the higher the rate you'll receive and the lesser the deposit you'll need to make. Significant penalties will be charged for early withdrawals. Deposits are FDIC insured up to $100,000. These are safe investments for excess funds you won't need for a long period of time. You're assured a high rate of return because the rate is "locked in," over the term of the certificate.

Time Deposit Open Accounts (TDOAs)
TDOAs are similar to CDs. Both are time deposits made with a financial institution for a fixed maturity ranging from seven days to five years. Unlike CDs, which are negotiable, TDOAs are non-negotiable. Interest, like the CDs, may be calculated on either a 360- or 365-day basis, depending on the financial institution you use.  A benefit of TDOAs over CDs is in the fees. Most financial institutions will not collateralize CDs, resulting in purchase and/or safekeeping charges.

Credit Union Investment Accounts
Credit Union Investment Accounts are limited in what types of account funds can be invested and what credit unions can be used. The credit union you'd like to invest money in must be chartered under U.S. or Illinois law. The credit union's principal office must be located in Illinois.  Accounts available for investment of public funds include insured dividend-bearing share accounts, share certificate accounts, and class of share accounts, any account that is not a common share account.

U.S. Treasury Bills
T-Bills are issued at a discount, meaning less than face value, with maturities of 3, 6 and 12 months.  The investor earns interest, which is the difference between the purchase amount and the face value received at maturity. The short maturities, paired with the high volume of outstanding securities, mean T-bills provide unparalleled liquidity. The Bills sell at auction in minimum denominations of $10,000 and multiples of $5,000 thereafter. Three and six month Bills are auctioned every Monday (unless Monday is a holiday, then the auction is usually the preceding Friday). Payment is due on the Thursday following the auction, which is also the day the outstanding bills mature. Fifty two week bills are auctioned once a month. The Bills are also payable and due on Thursday.   T-Bills are good investments for governments because their maturities can be selected carefully with your cash flow needs in mind.

U.S. Treasury Notes & Bonds
Treasury Notes and Bonds, two other U.S. Treasury securities, have original maturities ranging from 2 to 30 years. Treasury Notes' maturities range from 2 to 10 years, while Bonds' range from 10 to 30 years. Each security has a fixed coupon rate of interest, paid semi-annually. Generally, both T-Bonds and Notes have a minimum investment of $5,000. While the U.S. Treasury has set procedures and timing for selling bonds, this schedule may change when necessary.

Zero Coupon Treasury Securities
Zero Coupon Treasury Securities represent ownership of interest or principal payments on U.S. Treasury Notes or Bonds. They are issued in face value increments of $1,000 and are purchased at a discount of 20 to 90 percent depending on the security's final maturity.   No payments are made until maturity, which differs from the Notes and Bonds and hence the name, Zero Coupon. The initial yield is locked in with automatic semi-annual compound reinvestment at the stated yield. Actively traded in the secondary market, Zeros give you liquidity. There's also, generally, a low minimum investment of only $1,000.

STRIPS
STRIPS are stock option contracts made up of two puts and one call. Puts and calls are options, but not obligations, to buy or sell an asset, respectively. Standing for Separate Trading of Registered Interest and Principal of Securities, the STRIPs were created in 1985 by the U.S. Treasury. They are generic, multiple market maker zero coupon securities consisting of interest or principal on U.S. Treasury Securities. Other Treasury zero-coupon products include Treasury Receipts, which are generic, multiple market maker zero coupon securities representing interest or principal payments on U.S. Treasury securities; Physicals, which consist of interest or principal payments on U.S. Treasury Securities; and Proprietary Receipts commonly called "animals", including CATs, Cougars, ETRs, LIONs, STARs, TIGRs and ZEBRAs. These are proprietary, usually single market maker zero coupon securities representing interest or principal payments on U.S. Treasury securities.

The Federal National Mortgage Association
The Federal National Mortgage Association, commonly known as Fannie Mae, is one of the most credit-worthy securities available to you. This mortgage-backed security is guaranteed by the FNMA, a Congressionally chartered, shareholder-owned company. Created by Congress to support the secondary market in guaranteed or insured mortgages, Fannie Mae's primary function is to purchase mortgages, especially in tight money periods. While they are guaranteed by FNMA, they are not obligations of, nor guaranteed by, the U.S. Government. Fannie Mae offers discount notes with maturities ranging from one month to one year and are available in book-entry form only. They are sold at a minimum purchase of $10,00O and increments of $5,000.

U.S. Government Agency Securities
This group of securities are all U.S. Government Agency securities. They're all issued and guaranteed by various agencies of the Federal government. Yields tend to be higher than on U.S. Treasury Securities because they are guaranteed by an agency and not the government. U.S. Government Agency Securities usually are not subject to call prior to maturity. I'll briefly explain Agency Notes and Discount Notes and then get more detailed with Ginnie Maes and Federal Home Loan Mortgage Corp.'s CMOs.

Agency notes
Agency notes are issued primarily by the Federal Farm Credit Bank, Federal Home Loan Bank Board and the Federal National Mortgage Association. These securities generally bear interest at a fixed-coupon rate, payable semi-annually and come in maturities from three months to 25 years. $10,000 is the minimum investment required.

The Federal Home Loan Mortgage Corporation (FHLMC) Collateralized Mortgage Obligations (CMOs) are different from Ginnie Maes and similar mortgage-backed securities in the prioritization of the cash flows received from the mortgages and their distribution to several classes of bond holders. This creates a set of varying maturities that are attractive to short and intermediate term investors at yields that are often higher than those of many other securities. Interest may be paid monthly, quarterly or semi-annually_, depending on the issue. The investor also receives the principal.  The minimum investment required for this CMO is $25,000. CMOs are also issued by other government agencies and private underwriters.

An advantage of Federal Farm Credit Bank and FHLB securities is that the interest income generally is exempt from state and local income taxes.  However, FNMA, GNMA and FHLMC interest is fully taxable and all U.S. Government Agency securities income interest is taxed by the federal government. These are secure investments that maximize after-tax rate of return.

Municipal Securities
Municipal Securities are the debt obligations of cities, counties, states, their political subdivision, agencies and authorities. They are what municipalities use to raise money for water and sewer systems, schools and hospitals. The securities represent the issuer's promise to pay a specified principal amount at maturity prior to redemption and a specified coupon rate. Interest rates can be fixed or variable and the securities can be long- or short-term issues. Taxable and tax-free securities are available.  Interest income on "tax free" securities is exempt from federal income taxes.   However, interest on Illinois issues is subject to state and local taxes.

Municipal Securities are actively traded, so the price will fluctuate with market conditions. Yields are lower than on taxable issues. Because Municipal Securities are not FDIC insured, be sure to find Municipal Securities that are privately insured by the issuer and rated AAA as a result of the insurance.

Taxable Municipal Bond and Note issues are the same as tax free Municipal Securities, except as the name implies, they are not exempt from income taxation.

Zero Coupon Municipal Bonds or Capital Appreciation Bonds are sold at a deep discount.  No interest is paid from purchase date to final maturity. Minimum requirements for investing vary upon the issuer and maturities are usually from 5 to 20 years.

Tax-exempt bond mutual funds offer an open-ended, diversified portfolio of Municipal Securities. 

Tax exempt Unit Investment Trusts are fixed portfolios of Municipal Securities with a stable yield payable quarterly, semi-annually or annually.

Unit Investment Trusts
A UIT is a fixed portfolio of securities, usually tax-exempt or GNMA bonds, Whoever organizes the trust buys a fixed amount of bonds and then closes the fund. The bonds are deposited with a trustee, usually a bank, which provides proof of ownership, safekeeping and income payments to investors. UITs are sold to investors in trust "units," which represent fractional, undivided ownership interests in the portfolio. They are offered on a "dollar price" basis, including a sales charge. Because of the sales charge, it is not a good idea to use UITs as short-term investments.  Invest in these for a minimum of five years.

The GIC
The Guaranteed Investment Contract is basically the same thing as a BIC, except the contract here is backed by an insurance company.

The Daily Investment Fund allows you to invest in the Overnight Eurodollar market and receive higher interest rates generally associated with the Eurodollar market. (The Eurodollar is a currency market in which U.S. dollar deposits are accepted by bankers in other countries for subsequent lending and investment Short term securities in the U.S. are often affected by events in the Eurodollar market.) The interest rate payable on the DIF account is usually established daily, according to existing money market condition. There is no minimum term required for a DIF account. Be aware that
THIS IS NOT AN ACCEITABLE INVESTMENT FOR GOVERNMENT FUNDS.

Interest Rate Caps are a series of options. The cost or premium of a cap is the value of those options expressed as a percent of the notional principal amount. These caps allow a company to limit the maximum interest expense on floating rate debt and maintain the opportunity to benefit from a lower cost of funds when rates fall. The company sets the cap level at a rate it deems sustainable. If interest rates move above that level, the institution handling the securities makes a cash payment to the customer based on the difference between actual rate and the cap rate for each settlement period. When market rates fall below the cap rate, the company has the ability to borrow at the lower rate.

As one of the fastest-growing areas of global corporate finance, Interest Rate Swaps allow a company to alter the type of interest rate it pays or receives. This market's purpose is to protect business from unforeseen risks and losses when interest rates fall in part of the world, or when a currency's value soars in another. The company can change from a fixed to floating interest rate or a floating to fixed rate. The company pays a fixed swap rate to the financial institution handling the Swap and receives a floating rate. The floating rate received in the swap matches the floating rate the company pays in the underlying loan. The result is a fixed rate to you. Regardless if rates rise or fall, your borrowing rate remains fixed at the swap rate.

Industrial Revenue Bonds are tax-exempt bonds issued by a municipality, public authority, or other government agency on behalf of private companies for the purpose of constructing, acquiring, improving or equipping eligible facilities. A minimum issue of $1 million is recommended.