A money market account offers several benefits unmatched by traditional savings accounts or other deposit products. In fact, a money market account takes many of the advantages of a savings account and a certificate of deposit, combining them into a completely unique deposit account with some of the best interest rates. Of course, opening a money market savings account isn’t the right option for everyone, so find out how money markets work and how you can use them to your advantage.
Money market accounts are deposit accounts that allow you to earn slightly higher rates than traditional savings accounts tend to offer, but with a few more restrictions. Typically, a money market requires that you maintain a minimum balance of anywhere from a few hundred dollars to several thousand. Often, the higher the minimum balance, the higher the interest rate offered on the account.
Additionally, there are usually restrictions on the number of withdrawals you can make from a money market account. Some only allow a few withdrawals each month, other accounts place limitations on the number of withdrawals per quarter.
These qualities are what make money market accounts a lot like a savings account/CD hybrid — time restrictions allow you to earn a higher interest rate, but there is still liquidity to your funds.
Money market accounts are sometimes confused with money market funds, which work a bit differently. While money market accounts are deposit accounts you can open at your bank, money market funds (MMFs) are investment products that you hold through a brokerage. They sound and operate similarly, but they are not the same thing. The biggest differentiating factor between money market accounts and MMFs is that it is possible to lose principal invested in the funds, while principal in money market accounts is guaranteed and insured by the FDIC, up to federal limits.
Because one of the biggest benefits of a money market account is the ability to earn a higher interest rate, it’s important to ensure your really are receiving a competitive rate on your account. Not all banks and credit unions offer the same money market rates, so it’s up to you to compare offers from a variety of institutions and see who can provide you the best money market account terms and rates.
Money market accounts are best for depositors who have quite a bit of savings to invest and don’t need daily access to that money. If you’re top concern in maximizing your savings with the best money market rates available today, but still want to maintain some liquidity, this type of account may be perfect for you.
Money market accounts are similar to checking accounts, but they allow consumers the opportunity to make returns on deposited money. They are often compared to mutual funds; however, they are considered safer because they keep share prices at $1.
Money market accounts can be acquired through almost any local financial institution. As with checking accounts, opening money market accounts give you immediate and regular access to your funds through a checkbook. Also, they require no minimum transaction amount and allow for fast and easy cash deposits.
Once you invest in a money market account, a money manager will take your cash then invest it in t-bills, bonds, CDs, commercial papers or mutual funds. After interest is earned on your investment, the manager pays you your portion of the earnings. Unlike CDs that have interest rates that mature over time, money market accounts require additional deposits to benefit from higher interest returns.
Money Market Accounts are great ways for people to gain interest on their money. Learn how money markets can help you.