It may sound complicated when talking about Money Market accounts but it is actually quite simple in reality. Let’s say you are sitting on a pile of money, and you want a place to set that money with virtually no risk and the ability to forget it for the time being. Money markets may offer you something of interest.
What is a money market account?
Like a savings account that has the added benefit of being able to use it minimally like a checking account is what money market account entails. Different rules as to how many transactions or what kind of transactions that you may utilize is made by different institutions, but the flexibility is there to use it in that way. In addition to being able to utilize this account like a checking account, money market accounts typically carry much higher interest earnings on the money deposited in relation to a traditional checking or savings account. Be careful not to confuse money market accounts with their similar sounding neighbors “money market funds”, which are not federally insured and do carry market risk as an investment.
When would you use a money market account?
People use money market account to meet their financial goals and uses for different ways. This is because money market accounts are not typically viewed as great investment accounts as the interest rate earned is substantially lower than other means of investment. The rates received in money market accounts may or may not even keep up with inflation at the end of the day. However, if you are looking for a safe place to store your money with the ability to use the account in a limited way, this may be a great option for you.
How can I utilize a money market account?
For storing emergency funds in an accessible but less tempting place, one can adopt the use of money market account. It is an incentive to leave the account alone except for in cases where it is absolutely necessary; if you want to have limits on how many transactions you can conduct monthly without an additional charge. Money market accounts are also federally insured, protecting your investments if the institution goes under for some reason. Money market accounts are available in a variety of places. Opening a money market account could be as easy as opening one up at your local credit union or with any number of institutions. Another great use for a money market account is to use as a storage place for funds that you are saving to spend on a particular use (think home, tuition, trips, cars) and you need access for when you need it, but not in your regular account where you may spend it. Another added benefit is there would be higher interest earned without restrictions on when you can take it out.
Money Market Account vs. High Yield Savings Account
There are some disadvantages of each of them even though they both offer higher interest rates than a standard savings or checking account. The minimum opening balance is typically quite a bit higher than a high yielding savings account with a money market account. You however have more immediate access to use a money market account than you would with a high yielding savings account. The money market account can work as a hybrid checking and saving, simplifying your life depending on what you are using the account for.
Congrats to you for saving money and looking to recoup some interest on that money saved. Keep pushing forward with your positive spending and saving habits and you will be one step closer to financial freedom.