A money market account is kind of like a cross between a checking and savings account that banks and credit unions offer. The difference is that the bank usually pays a higher interest, and there are different requirements as to the account’s minimum balance and there are typically only three to six withdrawals allowed from that account per month. If you have a money market account, most banks let you write checks from that account up to three times a month.
Like savings accounts and checking accounts, money market accounts are insured by the Federal Deposit Insurance Corporation. This insures that your money is obtainable even if your bank closes or goes out of business. The FDIC has made sure not one person has lost money in a bank or credit union since its arrival in 1933. The money in a money market account in credit unions is insured by the National Credit Union Administration.
When you invest your money into a money market account at the bank, it earns interest just as a regular savings account. The Interest is the money the bank pays you so they can use your money to fund loans to other people.
• You want to invest your money into a money market account with easy approval at your bank
• Your bank pays you interest on the money that you deposit and leaves it in your money market account
• Your bank loans that money to others, charging them a slightly higher interest for the loan than what they pay you in interest on your account
The difference in interest they pay you and the interest they charge others for their loans is how they make their money.
The interest you make in your money market account works to your advantage. The bank compounds it daily and pays you monthly. This means your bank is paying you interest on the money they have already paid you in interest.
Banks differ in how their money market accounts are set up, because interest rates vary from bank to bank – sometimes, the more money you have in your money market account, the higher your interest rate will be.
If you go over the amount of times you can withdrawal money from your money market account, your bank may charge you a small fee. There could also be a fee if you do not maintain a certain balance in your account. Although these fees are typically around five dollars, it is a good idea to do some research before you invest your money.
Here are some suggestions in comparing bank money market accounts:
• Look at fees and service charges on the account
• Learn the minimum balance requirements
• Find the best interest rate paid on your balance
Once you have your money market account, you need to keep good records of your withdraws and account balance. Keep an eye on your register and bank statement to ensure accuracy.