Getting a firm grasp of your personal finances is a task that can be very daunting, but is worthwhile in the long run. To better help others understand the various options available to them, here at Main St. Finance we have written up some handy guides to help explain various financial topics. Today’s entry will focus on Money Market Accounts.
What Is A Money Market Account?
Simply put, a money market account is a savings account. Typically these kinds of accounts also offer limited checking or debit options, and limit the number of transactions account holders can make every month. Money market accounts usually require higher initial deposit or balance amounts than traditional savings accounts. In the past, money market accounts were known to offer higher interest rates than traditional savings or checking accounts, but at present rates are actually pretty similar across those account types.
Can you lose your money in a money market account?
Money market accounts are insured by the Federal Deposit Insurance Corp. (FDIC) when the account is held at a bank, and the National Credit Union Administration (NCUA) when held at credit unions. The coverage these entities provide on these kinds of accounts mean that deposits made into the account are safe even in the unfortunate event that your financial institution goes out of business.
What Are The Advantages Of A Money Market Account?
While the interest rates offered on modern money market accounts are comparable to traditional savings accounts, they still offer some of the overall best interest rates available at most banks and credit unions. Additionally, money market accounts are useful for safely storing large sums of money thanks to the FDIC and NCUA protections on them. Finally, in an emergency it is often easier to access the funds in a money market than those in a traditional savings account.
What Are The Disadvantages Of A Money Market Account?
As we have touched on, most money market accounts limit the number of times you can access or transfer funds every month, so if you will need to make frequent withdrawals this is definitely not the kind of account to have. Additionally, these kinds of accounts frequently require higher deposits and minimum balances compared to savings accounts, so if you can not comfortably commit such large sums to a single account with limited access, it may not be the right fit.
Should I Open A Money Market Account?
That entirely depends on your situation. Money market accounts are most beneficial to customers who are looking to create a healthy savings account. Due to the limits on monthly transactions, as well as the high interest rates these accounts carry, they produce the highest return and benefit to account holders when pure savings are the goal as opposed to an account that can be used for everyday expenses. Those looking to safely make their money grow with a high yield interest rate should absolutely consider a money market account, especially when those kinds of accounts are offering notably high interest rates. Those who can make large deposits and comfortably let them sit and earn interest will get the most value from money market accounts, while those who will need frequent access to their funds should stay away.