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Money Market Accounts
Money market accounts are a type of savings account offered by banks and credit unions, and operate in much the same vein as a regular savings account. The major difference between a savings account and a money market account is that money market accounts pay higher interest, have higher minimum balance requirements (as high as $1,000-$2000), and limit the number of withdraws that you can make each month.
Many people choose to deposit their savings into money market accounts because it is a safe place to invest their money. The Federal Deposit Insurance Corporation (FDIC) insures every bank’s money market accounts, guaranteeing that your savings will be there regardless of any crisis that should strike the financial market. Even if the bank or credit union should suddenly go out of business, you will still be able to access your savings through the FDIC. With credit unions, a money market account should always come with insurance by the National Credit Union Administration (NCUA).
Interest on money market accounts is higher than that of savings accounts. The exact rates vary from bank to bank, but with so many banks now competing to have you deposit your money with them, you should be able to find an institution with a high interest rate on money market accounts fairly easily if you simply shop around. The interest on a money market account is usually compounded daily, and paid monthly. With this quick rate of turnaround, the bank ends up paying further interest on interest they’ve already paid you, helping your savings to grow that much faster! Also, the more money that you deposit into a money market account, the higher the interest rate most banks will offer you. If you find a bank with a competitive interest rate and deposit enough into the account, you could easily be looking at 5-6% interest being earned on your investment! Those numbers crunch out to look pretty good for your savings!
However, there are some slight pitfalls to be aware of. In recent months, interest rates on money market accounts have been in decline, even falling below inflation rates, which means that investors are making less profit off their savings than before. There are also strict fees and conditions that go along with a money market account. If you exceed the maximum number of withdraws allowed each month, the bank can charge you $5-10 for each additional withdraw you make over the maximum. Also, if you fail to maintain the minimum balance required by your financial institution, that infraction can result in a penalty of about $5. The details will vary from bank to bank, but the penalties will remain the same. If you choose to open a money market account, be wary; check to make sure that the interest rates are going to suitable enough for you weather the strict conditions that come with the account, and always keep track of how much you have in it, and how many times you’re withdrawing from it each month. Handled correctly, a money market account is one of the safest investments you can make with your money.
Topics: Investing |
