What is a Money Market Account?

26
March

When you decide to save your money, it is good to look into various options. Savings no longer entail putting your money in an account and having it just sit there. You can actually make a substantial amount of money through interest rates from your savings. A money-market account is comparable to a savings account with a few notable dissimilarities. Unlike regular savings accounts, a money-market account has higher interest rates. For example, a savings account may only earn you 0.10% interest while a money-market account can earn you at least 1.50% interest. However, certain limitations are enforced by banks that have money-market accounts. These include;

* The initial amount of money you have to deposit.
* The minimum balance the account may have at any time.
* The number of monthly transactions that can be carried out.

The limitations depend on the bank, and therefore, they may vary. For instance, one bank may only allow four monthly transactions while another may permit up to six transactions. The main purpose for having a money-market account is to gain higher interest on your money at minimal risk. Banks that offer money-market accounts are secure because they are insured under Federal Deposit Insurance Corporation (FDIC). You are therefore guaranteed that your money is safe should the bank undergo a huge financial loss or file for bankruptcy.

The reason why money-market accounts draw higher interest rates is because the money is used by the bank to carry out other transactions. Basically, the bank advances or invests your money elsewhere to generate more money. The investments are usually temporary, and the risk level is very low. These investments can be treasury bills, certificates of deposit or other secure financial government avenues. They repay you a given percentage in the form of interest for allowing them to use the money. This is why the number of transactions allowed on the account is limited as is the minimum balance. Should you go above the number of transactions permitted, you will be charged a certain amount of money for that.

Money-market accounts are ideal for long-term savings. You enjoy higher interest rates, and your money is secure. Even though there are limitations, you still have access to your money if need be. You should note, however, that the bank you choose to open your money-market account matters. A little research and comparison is necessary prior to opening an account. Larger banking corporations may offer better interest rates on money-market accounts. However, they are not insured by the Federal Deposit Insurance Corporation. In due course, should any mishaps occur; you stand to lose all your money. Therefore, consider all your options before making a choice.

It is not advisable to put your petty cash in money-market accounts. This is because you need access to such money regularly. The whole point of saving money in a money-market account is to benefit from interest rates and increase your savings. Depositing petty cash in a money-market account may interfere with the limitations, which may result to financial loss due to penalties incurred. Save wisely by utilizing money-market accounts. It does you no good to have money sitting in a savings account earning minuscule amounts on interest rates, while you could be receiving double or more in a money-market account.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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