What is a Money Market Account? 5 Benefits of Putting your Cash into One
What is a Money Market Account?
What is a Money Market account? Many people live paycheck to paycheck. Any disruption in the wages they earn in the typical work week can adversely impact their household budget. A sign of financial stability occurs when you earn enough to save money for your own list of reasons. You might need to earmark money for retirement, pay extra money to your credit cards, or have a backup fund for unexpected medical bills or being out of work.
Sometimes, you might need savings for special one-time expenses, such as a relocation plan, a wedding, or an overseas trip. Regardless of your financial goals, maintaining additional savings will relieve any gaps in your current income. So let’s start with answering the question “what is a money market account?”
Top 5 Benefits of a Money Market Account
Whenever there is extra cash on hand, there are numerous ways to invest it. Some consumers choose to purchase real estate or collectible vehicles. Others save for their children’s college education by opening a minor savings account or a certificate of deposit. Consumers who are willing to accept a small level of risk and potentially earn more interest will consider starting a money market account.
1. Higher Interest Rates
While bank interest rates are lower than they have been in years, you can compare the same bank’s annual percentage yield (APY) on a traditional savings account to its APY on a money market account. Both of these types of savings accounts carry minimal risk. A money market account’s APY should be higher.
2. Tiered Interest
This scheme for earning interest is known as tiered interest. Let’s say that you only deposit $5,000 into the money market account when you open it. If you can find another $5,000 to put into it six months later, your new total is now $10,000 plus interest earned on the first deposit over six months. Your account may then qualify for a higher APY because the total balance is in a higher tier.
If you’re willing to leave your money in the bank according to their terms and maintain the minimum balance, your cash will begin to grow. The interest will compound on itself, which makes your financial status more liquid. It’s easy to use an online calculator to estimate how much interest the account will generate over the first year. Also, a virtual comparison tool on any reliable website can help you compare money market accounts across banks and credit unions.
4. Investment Safety
If you deposit funds in a traditional bank which has its own investors, then choose an organization that ensures each savings deposit through the Federal Deposit Insurance Corporation (FDIC). If you choose to deposit funds in a credit union which is owned by its members, then verify that your savings will be protected by the National Credit Union Share Insurance Fund (NCUSIF).
5. Online Account Management
You can choose to deposit your cash into a money market account in any bank or credit union that will accept your application. Believe it or not, some financial institutions offer most or all services to depositors online. They can help you answer “What is a money market account?” with different options. There may be initial paperwork to sign and mail or fax to the financial institution in order to join. In our virtual world, you can easily manage your money through the financial institution’s app or online portal. When needed, you can call the institution to perform wire transfers and other transactions for a small fee. Online account management includes viewing monthly statements, requesting an ATM card, changing a PIN number, printing out federal tax statements (i.e. INT forms), and moving funds between different accounts. Some financial institutions permit their account holders to pay bills out of a savings account as long as they maintain the minimum balance. Otherwise, the institution may charge a service fee for an account having insufficient funds.
Get Started Today
When you aren’t sure what is a money market account or whether to invest your money without assuming risk, comparing banks is a good option. Search for the highest interest rate on money market accounts across online and local banking institutions. While you may not qualify for membership in a credit union with the best rate, a local bank or an online bank might fit your needs.
Some banks require a small initial deposit (i.e. $100) to open this type of savings account. If you put away money and allow it to grow over time, then there will be extra cash flow when you need it. For example, you might need to let your money earn interest for a couple of years before making a down payment down on a new or resale home. Get started today with meeting your saving goals!