What is a money market account, and what can it do for me?
A money market account is a savings deposit option that can give you a little more for your money than a traditional savings account.
How does this work? allow you to access your money at any time, but they will typically have restrictions on how frequently you can access your account (for example, no more often than three times a month). Money market accounts may also require you to maintain a certain minimum balance to avoid fees.
Knowing that customers' deposits in these accounts are going to fairly stable gives the banks more latitude to turn around and invest those funds in short-term fixed-income financial instruments (otherwise known as "money market instruments," hence the name of the account). This additional investment latitude pays off in the form of high interest rates, which the bank can pass along to you, the customer.
Why Use a Money Market Account Instead of a Savings Account >>
Why use a money market account instead of a savings account?
Think of money market accounts as a happy medium between savings accounts and certificates of deposit (CDs). While money market accounts will typically put more restrictions on accessing your money than savings accounts, money market rates are actually comparable with short-term CD rates--without locking up your money for a specified period of time, as CDs do.
Money market accounts are perfect for deposits you don't expect to access frequently but that you want access to when you need it. For example, if you are just starting a savings program and need an account to hold scheduled deposits but expect to withdraw the money only rarely, then a money market account is a good choice. Money market accounts are also a good fit for emergency funds or home down payment funds.
How Do I Choose A Money Market Account >>
How do I choose a money market account?
There are literally thousands of FDIC-insured institutions out there, so start with some comparison shopping of money market accounts. Internet tools make it easier than ever to compare money market rates across many banks.
Beyond just looking for high interest rates, there are some other things to keep in mind when shopping for money market accounts:
- Make sure you can live with the account restrictions and any minimum balance requirement.
- Determine whether the advertised rate is just a temporary or introductory "teaser" rate.
- Since bank rates are subject to fluctuations, continue to keep tabs on the highest money market rates on the market after you've opened your account. It could be that the bank offering the best money market rates today may not be the bank offering the top rates half a year from now.
How Are Money Market Accounts Different Than Money Market Funds >>
How are money market accounts different from money market funds?
As you start shopping for money market accounts, be careful that you don't confuse them with money market funds.
Money market funds, which are typically offered by brokerage firms and mutual fund companies, are a form of mutual fund which invests in money market instruments. However, under certain conditions, they may be riskier than bank money market accounts.
The biggest difference between the two is that money market accounts offered by FDIC member banks are covered by FDIC deposit insurance. Money market funds are not. If it's stability and security you are looking for, focus your search on money market accounts from banks.
4 Steps to Getting More with a Money Market Account >>
4 steps to getting more with a money market account
So now you know that money market accounts are a safe and secure form of deposit account which can earn you more interest than a conventional savings account.
Here's what you can do today to get started on a money market account:
- Determine if you have earmarked savings that would be a good fit for a money market account.
- Compare the highest money market rates on SavingsAccounts.com.
- Check the terms of accounts offering the best money market rates.
- Contact the bank of your choice about opening your new money market account.
The sooner you start, the sooner you'll be earning favorable money market account rates on your hard-earned savings.
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