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What is a Money Market Account, and What Can it Do For Me?
A money market account is a savings option that can give you a little more for your money than a traditional savings account.
How does this work? Money market accounts typically have restrictions on how frequently you can access your money, and may also require you to maintain a certain minimum balance to avoid fees. Knowing that customers' deposits in these accounts are going to be fairly stable gives the banks more latitude to invest those funds in short-term, fixed-income financial instruments (otherwise known as "money market instruments").
This additional investment flexibility pays off in the form of higher interest rates, which the bank can pass along to you as a depositor.
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 typically put more restrictions on accessing your money than savings accounts, money market accounts often offer rates that are comparable with short-term CDs -- without the time requirements that come with CDs.
Money market accounts are perfect for deposits you don't expect to access frequently, but that you want access to when you need it. As such, money market accounts can be a great choice for emergency funds or home savings.
How Do I Choose a Money Market Account?
Start with some comparison shopping. Internet tools make it easier than ever to compare money market rates across banks.
Beyond high interest rates, there are some other things to look for when shopping for money market accounts:
Make sure you can live with the account restrictions and minimum balance requirements.
Determine whether the advertised rate is just a temporary or "teaser" rate.
Since bank rates are subject to fluctuations, keep an eye on your rate after you've opened your account to make you're still getting a competitive yield.
How are Money Market Accounts Different from Money Market Funds?
As you shop for a money market account, be careful that you don't confuse them with money market funds. Money market funds are a form of mutual fund that invests in money market instruments. But under certain conditions, they may be riskier than money market accounts.
The biggest difference between the two is that money market accounts from FDIC member banks are covered by FDIC insurance. Money market funds are not. If stability and security are paramount to you, a money market account may be your preference.
4 Steps to Getting More From a Money Market Account
So now that you know that money market accounts are a secure type of deposit account that can earn you more interest than a conventional savings account, here's what you can do to get started:
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 the accounts that offer the best money market rates
Follow the steps listed to start your account today
The sooner you start, the sooner you can begin earning higher rates on your hard-earned savings.
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