In the Market for a Money Market? Here’s the Low-Down
You’ve got a decent amount of cash but aren’t sure what to do with it. You could put it in a savings account, but with its low interest rate, it’s just not that appealing to you. You’re looking for something that’s low risk but can offer you a better return. Surprisingly enough, there is an option. It’s called a money market account, and it’s most likely been right under your nose this entire time – it’s a common account offered by both banks and credit unions. Intrigued? Read on to learn exactly what it is. Who knows? It may be exactly what you’ve been looking for.
What is a money market account?
“As the name suggests, money market accounts (MMAs) follow the trends of financial markets to generate interest for depositors. Instead of using these deposits to fund mortgages and other credit instruments, banks reinvest your savings into traditionally secure, short-term holdings. Treasury bills, bonds and other stable investments tend to make up the bulk of banks’ money market account investments,” writes MoneyRates.com. Banks then take these dividends and pass them along to you in the form of higher interest rates.
Simply put, MMAs are another resource you can utilize to save money. It’s a type of savings account that’s offered by banks and credit unions. The difference is that it can usually pay higher interest, has higher minimum balance requirements (it can sometimes be anywhere from $1,000 to $2,500), and only allows three to six withdrawals per month, according to How Stuff Works. Many MMAs will also let you write up to three checks each month.
If you have a money market account through your bank, it’s insured by the Federal Deposit Insurance Corp. (Read: Your money will still be there even if the bank or credit union goes out of business.) Keep in mind, there is a difference between a money market account and a money market fund. A MMF is offered by brokerages and is not FDIC insured. Its value may also fluctuate, causing you to possibly lose money over time, says MoneyRates.com.