Commercial Paper Vehicles
Image Image courtesy of cooldesign at FreeDigitalPhotos.net

Commercial Paper Vehicles

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 check writing) as well as competitive rates.

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 with Commercial Paper:

These accounts are not FDIC insured, so make sure that your issuer has a top credit rating.

Avoiding Pitfalls of Commercial Paper:

These accounts are not generally recommended as they do not provide the level of security of the other cash equivalents discussed in this website.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.

Comments

Add your Comment