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Commercial
paper is a company's senior, unsecured debt. Several
companies offer programs through which depositors can
maintain commercial paper accounts. The companies that
offer these accounts find them to be effective ways
to borrow at very low costs of capital directly from
depositors. Most issuers claim that these accounts are
fully negotiable and have instituted banking features
(such as ATM access and checkwriting) as well as competitive
rates.
Liquid commercial paper accounts offered by the most creditworthy issuers could be considered as an attractive cash equivalent. These accounts, however, are not FDIC-insured, like savings accounts or CDs. They are not invested in diversified pools, like money market funds. They are not secured by a pool of assets, like auction rate securities or variable rate demand notes. Since deposits are treated as a form of unsecured credit, if there were to be a default, you would be treated as an unsecured creditor and you would likely recover only a fraction of your deposit.
What to Look for: