What is a Money Market Account? 6 Reasons why It is The Best for You!

Investing 30 November 2024
What is a money market account

What comes to your mind when you think of preserving your hard-earned money? A Savings Account, right? A recent survey by Bankrate found that 98.6% of Americans have some or the other traction accounts like Savings A/C. Let’s find out What is a money market account?

But it’s time to change the apparent reality now. The time is rife to shift your hard-earned money to money market accounts.

For those who don’t know what a money market account is, it is a deposit account that runs as per fixed return schemes. Meanwhile, money market accounts offer the security, growth, and flexibility Savings A/Cs usually offer.

Read the article to know if you need a money market account for yourself.

What is a money market account?

Most people don’t have a clear idea of what is a money market account. Firstly, it is a deposit account. Secondly, you can earn interest from the account. And lastly, the most credible banks and credit unions in the country run the money market accounts.

Money market accounts are applauded for many things other than high interest rates. They come with credit card facilities and check withdrawal leverage, too. Why would you choose something else when you get all the advantages of a savings account plus high interest?

Now the question is, who should invest in these accounts? Firstly, people with short-term financial goals can invest here. Imagine you’re planning to get an apartment in the next two years. It would be an ideal time to invest in money market accounts.

Secondly, retirees can invest a part of their retirement funds here. They can face several contingencies after retirement, most supposedly health-related. So, a quick 5 to 5.5% return on $50,000 to $100,000 will help them profusely.

They can earn the cut from money market accounts and reinvest as they will. Since these accounts offer check and debit cards, you can withdraw any amount, barring the MAB. Some money market accounts also offer a $0 minimum account balance facility.

Are money market accounts safe to invest in?

All FDIC-accredited banks and credit unions run the money market account schemes. So, insecurity is out of the question. There is no way you can lose your money here. Meanwhile, it is imperative that people doubt whether such high money market account interest rates will fluctuate anytime soon.

Let me tell you there is a 0% possibility of the same. When you invest in money market accounts, your receivable interest gets locked. But what if the interest rate slumps before I invest?

Those who think that way must know that money market interest rates like stocks, indexes, and mutual funds don’t fluctuate overnight. Hence, a bank that offers 5.05% APY will keep doing so for a considerable time.

At best, it may trickle down a meager 0.5%, but not more. I know you might wonder how and why money market interest rates are immune.

Well, there are multiple reasons for this. Banks reinvest your investments into CDs, securities and bonds, commercial papers, and other stable return options. That’s why the 15 to 20 best money market accounts can also offer high returns that overcome inflation.

Know How Money Market Accounts Work

What is a money market account? It is a deposit account. But it also offers interest. The interest rate is probably the highest in the market. The average investment market accounts in the US offer 0.42% APY.

However, money market accounts offer a national average of 0.61% stable APY.

Most money market accounts can offer steady returns as there are ample revenue sources that work for these banks. Firstly, money market accounts charge high opening charges and comparatively higher minimum account balance criteria.

It is a stable source of earnings. Often, the initial investment requirement goes as high as $2500.

You can, however, extract your earnings at any time using credit cards and/or checks. Most money market accounts offer these features. But how can interest-bearing accounts like these offer such schemes?

Most people don’t know that there are other limitations of these accounts. For example, transactions like online transfers and most outgoing checks are disallowed. Meanwhile, people rarely draw out money before the maturity of the schemes.

Hence, the banks can use the money to surge their revenue sources. Meanwhile, it offers customers higher interest rates than your savings A/Cs.

Reasons to choose money market accounts

You may channel your earnings, 401(k) A/C returns, investment returns, and other assets into common traction accounts like savings accounts. But the dimension is gonna change with money market accounts around.

It is among the most thoughtful investment schemes for micro and macro investors. They will enjoy high interest rates and added benefits they never expected from a deposit scheme:

BenefitsImpact on Customers
Higher Interest RatesMost money market accounts offer better interest rates than the traditional savings accounts. While Savings A/C interest may go upto 4 to 4.5%, money market accounts can offer much more. The top 15 MMAs provide at least 5.00% APY.
Flexibility and Easiness of UseMoney market accounts offer you the most extensive facility among investment account options. You can withdraw your money using debit and check facilities anytime. There is also no bar on the amounts you can withdraw in one turn. However, other schemes with high returns, like CDs, lock your quantity for a long.
Proofing by FDICAll banks and credit unions offering MMAs are FDIC-insured. So, your money and returns are safe with them. But FDIC will certainly insure upto $250,000 per customer, per account.

What is a money market account doing to fulfil your financial goals?

You may have diverse financial needs. And there are schemes for each need. So, which needs are linked closely with money market accounts?

Firstly, MMAs fulfill our deposit needs. Hence, we can set lofty savings goals when MMAs are around. However, there are more significant financial needs, too. And MMAs can take care of some of the following:

Prompt monetary needs

Do you need $5000 to $10,000 in quick successions? Try nothing else than money market account investments. You may be prepping for your dream car or planning a foreign vacation.

With a money market account, your out-of-pocket investment will be nearly 0. Just start early and research well before investing. At least check out the best Money market account rates before investing.

Emergency funding needs

Retirees can use this account as an emergency fund. On the one hand, MMAs are already a good deposit account option. On the other hand, you are earning recurring interest on your account balance.

So, retirees can efficiently and faithfully invest their 401(k) returns here. When you can invest big, investing in accounts like VIO Bank Deposit, CFG Community Bank, HarborStone Credit Union, and other such high-yield money market accounts is better.

All these accounts offer at least 5.00% APY. HarborStone offers 5.30% APY. There are other leverages for high-value investors. So, it is better to simultaneously make significant investments in money market accounts.

Don’t mix money market and money market mutual fund accounts.

Money market accounts may have some features of savings and other traction accounts, like checking accounts, but they are investment accounts in reality. Meanwhile, some money market accounts offer check withdrawal facilities, too.

So, beware of the same. And be mindful of the following potential differences between these two types of accounts:

Money Market AccountsMoney Market Mutual Fund Accounts
Banks and credit unions mainly offer money market accountsBrokerage funds and other private funding companies offer these accounts
Offers debit card and check withdrawal facilitiesOffers no such benefits and locks your investment till the maturity period. Forced withdrawals reduce your end-of-the-scheme returns and impose fines.
You can start investing with as low as $0.01You must invest a considerable amount to start earning with money market mutual funds.

Open Your Money Market Account Today

Opening a money market account is easy. Firstly, decide on the scheme you want to invest in, and then set aside the investible amount.

After that, you need to prepare your documentation. Shared docs like ID proof, address proof, income proof, and income statements would do.

The last step is to visit your bank and open an account. That’s all for now. Ping me if you face any trouble opening your MMA. For more ideas on money market investments, comment with your particular queries.

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Shahnawaz Alam

Shahnawaz is a passionate and professional Content writer. He loves to read, write, draw and share his knowledge in different niches like Technology, Cryptocurrency, Travel,Social Media, Social Media Marketing, and Healthcare.

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