How Money Market Accounts Work and Why You Should Open One

 

Money Market Accounts: The Facts, Benefits, and How to Set Up One

Money Market Accounts

When it comes to earning interest on your money, savings account aren’t the only game in town. Money market accounts are one of the most popular savings options, and if you aren’t familiar with their features, it’s probably time to learn more. So how does a money market account work? Here’s a primer on this flexible savings account. A money market account works like other bank accounts.

What Is a Money Market Account?

Money market accounts are an alternative to checking or savings accounts. Instead of paying a fixed, predictable interest rate on a set amount of money, money market accounts pay an amount of interest based on the daily average yield of a major money market index. Continue Reading Below These money market accounts differ from certificates of deposit (CDs) in a number of ways. For example, money market accounts don’t carry a maturity date like certificates of deposit. Unlike CDs, money market accounts can be cashed out anytime, whereas you can’t access a CD without a specific am

Money market account

ount of time. Money market accounts also don’t pay back principal in the form of interest; instead, you’ll get a sum of money equal to the market yield — or return — of the money market index.

How Does a Money Market Account Work?

The short answer is that money market accounts are very similar to money market accounts at traditional banks. For one thing, you can deposit money in money market accounts at any financial institution. And for another, money market accounts allow you to earn interest. Like a savings account, a money market account requires you to have some deposit money to open the account, but you can also open a money market account with a small initial deposit. A money market account offers more flexibility. What’s more, money market accounts allow you to make regular deposits and withdrawals — and there are some accounts that let you make even more withdrawals than traditional bank accounts, such as withdrawals from cash machines and ATMs. How Much Should You Open a Money Market Account?

The Benefits of a Money Market Account

While a savings account earns a fixed rate of interest, a money market account usually pays a slightly higher rate of interest. Most money market accounts offer higher interest rates than traditional savings accounts, but remember that money market accounts also come with a number of perks. If you prefer to keep your money in cash rather than electronic means, a money market account may be a good option for you. Unlike traditional bank accounts, money market accounts do not pay interest on balances. Instead, interest earned is added to your account and cannot be withdrawn. Of course, the higher the interest rate, the less risk you’ll have if your account does not generate any interest at all.

Common Features of a Money Market Account

Money market accounts are offered by many major U.S. banks. They are similar to savings accounts, only they pay interest on a set percentage of your money. Money market accounts may have a variety of features that differ among banks. You could choose from a number of options: Fee-free balance sheet : You can pay no fee for your money. However, you may be charged a fee if you make a withdrawal in excess of a certain amount. : You can pay no fee for your money. However, you may be charged a fee if you make a withdrawal in excess of a certain amount. Interest rate : You may get an interest rate on your money. Usually, the higher the rate, the better. But, some banks charge interest on your money whether you get it or not. : You may get an interest rate on your money.

Checking account benefits

With a checking account, you get an assortment of perks and protections like access to your money, checks, ATM access, and withdrawals from your account in the form of cash or an electronic deposit. On the flip side, checking accounts don’t earn interest and have relatively high fees. Money market accounts, on the other hand, are not only lower-cost options than checking accounts, but they also offer more perks and advantages than other bank accounts. Some of these include: Liquidity — This benefit is important, and explains why you can’t get your money out of a money market account if the money market falls below a certain threshold. With a checking account, you can usually get your money out of the account if you need to withdraw it.

Free online banking and bill pay

The money market accounts available to consumers at commercial banks or credit unions all offer a basic web-based account where you can manage your balances and make online payments. They’re typically flexible in that you can typically redeem the money market account for one month’s worth of funds at a time without having to pay a penalty or fee. They also typically offer free online bill pay and online and mobile check deposits. But money market accounts can offer even more functionality, like online trading, online savings, a money market overlay account, and other features. And you don’t need to get your money market account through a commercial bank to reap these benefits.

Automatic savings plan

Money market accounts come in a few different flavors. The most basic money market account is known as a basic savings account. With this account, you are required to maintain a minimum balance to avoid losing interest. A basic savings account requires a minimum daily balance of $100 or more. As a rule, most banks charge an annual fee of around $10 to $15 for a basic savings account. While that’s not a lot of money, you can think of that as an interest-free loan to your money market account. A different option is a savings account that earns interest. Unlike a basic savings account, money market accounts don’t require a minimum balance or daily maintenance fee. Instead, you have access to a credit line that you can draw on if you need to.

How to Set Up One

As with most bank accounts, you need to open a money market account. The bank will either give you an existing account or will make a new one for you. The advantages to these accounts include that they allow you to invest your money in more sophisticated investments like securities or mutual funds.

Pick the right money market account for you

Money market accounts differ from savings accounts in a couple of key ways: Money market accounts are backed by a government agency, so you get a guaranteed interest rate for your money. It usually takes two to four days for your money to be fully invested. As a money market account holder, you can pull out your money at any time. Getting into a money market account Because money market accounts are backed by the Federal Deposit Insurance Corporation (FDIC), you can’t lose your money. If the FDIC ever loses its insurance, you won’t lose any money. To set up a money market account, you need to have an account at a bank with FDIC insurance.