When you’re thinking about expanding your financial toolbox, you might want to think about money market accounts. Money market accounts tend to contain the best of both worlds, checking- and savings-account-wise. Money market accounts have a fixed interest rate that is usually higher than a savings account. The FDIC insures these accounts as well, providing extra stability. A money market account holder has the ability to withdraw using a limited check-writing capability. There are a lot of reasons that money market accounts can even offer the benefits they do in the first place. When deciding whether such an account is right for you, consider your own financial situation and goals. If growth is your goal, this could be for you. Money market accounts are important tools that more people should know about to be successful in reaching their financial aims.
What is a Money Market Account?
Money market accounts are not complex, but there are a lot to them. Banks issue these types of accounts. You receive access to these money market deposit accounts (MMDAs) via the bank. The MMDAs are insured, as mentioned, and they are part of a well-rounded portfolio. Money market accounts can offer more of a percentage yield than another financial tools because of their breadth. Money market accounts can invest in CDs (Certificates of Deposit), commercial paper, and government securities. Commercial paper finances accounts payable, the satisfaction of short-term liabilities, and inventories. Commercial paper is for corporations and other businesses. It functions in the short-term as a debt instrumentality. Government securities, another vehicle in which MMDAs invest, include treasury bills, savings bonds, treasury notes, and more. They are low risk and the government issues them.
The whole idea of a money market is that it operates between banks and other financial institutions to deliver loans. The loans are short-term. MMDAs seek to use your money to work in this industry. And the results are generally pretty profitable.
Rates of Money Market Accounts
But, as with pretty much every account, there will be variations in terms. The APY, which stands for annual percentage yield, is generally (though not always) in the two to three percent range. For example, as of now, Sallie Mae is at 2.20% APY. That means that, at the end of the annual term, your yield with be 2.20% of your deposit. If you deposited $100 into a money market account, you will get $2.20. That might not sound like a lot, but thinking in larger terms, it has the potential to be. Rates vary based on the financial institution.
Fees and Limitations on Money Market Accounts
There are also fees and limits on MMDAs. While MMDAs give you more liquidity than bonds, they are not as liquid as checking accounts. There is a minimum deposit required to create a money market account. That can range from $1 to even $1,000. You also can incur a monthly fee if you do not make a deposit. In the defense of institutions requiring a $1,000 deposit, they usually do not charge monthly fees if you leave your account alone. There are also restrictions on the amount of withdrawals a holder can make over a certain time period.
Finding a Good Financial Institution
When looking for a good financial institution that offers money market accounts, you should compare rates. Compare rates and limitations, as well as terms, to decide whether it is right for you. Also, look at the minimum deposit rate. If the deposit requirement is high but the terms are, otherwise, favorable, you may want to save up before opening a money market account. As always, look at credit unions’ and financial analyst sites’ reviews to make sure there is no predatory behavior at the bank.
Advantages of Money Market Accounts
Money market accounts offer security and more liquidity. They have a larger range of financial depth than other accounts. They operate in the money market, so MMDA investments can work with all those financial tools. The percentage yield is higher than a savings account.
Hopefully, money market accounts have some more clarity now. These financial accounts provide a lot of benefits, and they accrue a higher annual yield and are secured and insured by the FDIC. Note that there are some fees and minimum requirements you may need to observe, depending on the financial institution. Money market accounts have better rates (usually) because there is a lower cost due to no office buildings, but that doesn’t eschew fees completely. The process isn’t too difficult. It is definitely something to think about if your financial goals involve growth (which they should).