Deposit Accounts: Understanding Money Market Accounts

(2/25/2013) Combining the simplicity and accessibility of a regular savings account with the higher yield of a certificate of deposit (CD), money market accounts provide a good savings and investment choice for larger deposits.

Money market accounts typically feature higher minimum account balance requirements, and reward these higher balances with more interest than general savings accounts. For example, banks and other financial institutions may offer a 1 percent interest rate for balances up to $10,000, and interest over 3 percent for balances over $25,000. it is important to note, however, that money market interest rates are tied to market ebbs and flows. While a CD will promise a guaranteed rate of return, for example, money markets cannot.

Similar to savings accounts, funds in a money market account can be accessed at any time, but withdrawals will be limited to a certain amount per month or calendar year. And similar to many savings accounts, if the balance falls below minimum requirements (which are typically higher with money market accounts), you will incur a fee.

Banks and other financial institutions will invest the money you place in a money market account into investments like CDs, treasury bills, or other relatively safe vehicles. For those investors who are risk averse, money market accounts provide a means to earn a nice return with little risk of loss.

All the features of a money market account make them ideal vehicles for a number of savings purposes, including emergency funds and retirement savings. In addition, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000.

When looking for a money market account, one of the most important things to look for is the interest rate. But be careful — there is a difference between money market accounts and money market funds, which are not FDIC-insured and feature more risk in their investment.

Overall, money market accounts are a safe way to save and invest without the risk of other methods and the lack of access to funds like CDs.

 

For Additional Reading:

How do Money Market Accounts Work:
http://money.howstuffworks.com/personal-finance/financial-planning/money-market-accounts.htm

Understanding Money Market Accounts:
http://www.ehow.com/about_7939452_understanding-money-market-accounts.html

An Introduction to Money Market Accounts and How to Find the Best Rates: http://www.getrichslowly.org/blog/2009/07/07/an-introduction-to-money-market-accounts/

 

 





 

 

 

 

 


 

 

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