A money market account can be federally insured which will lessen your risk while earning significantly more than a traditional savings account, sometimes up to double what you'd make with a regular savings account. A money market account and a money market fund are not the same thing, a money market fund is a variation of mutual funds.
Money market accounts or MMA's are sort of a high bred between a checking and savings account. They have the flexibility of allowing you to write checks like a checking account but they have the safety of a savings account, all while earning a higher interest rate that a traditional savings account.
You can open a MMA's at your local bank or credit union or at many online banks, and they are FDIC insured, or NCUA insured through a credit union. You will receive monthly dividend checks from your bank for any interest earned from your account. While this is a form of investing, you aren't the one doing the investing the bank is. These investments are between other financial institutions and governments so the money is safe even without the Federal insurance.
Before opening your account you can search online to see who is offering the best rates as well as what other fees and restrictions they have.
MMA's are not only a very secure form of investing they are also very liquid. You can write a check and get money from your account whenever you want to . The downside of an MMA is the fact that while they do earn more interest than a traditional savings account it is still significantly less than what you can earn with other types of investments, of course your risk is considerably less too.
Another potential drawback, especially for the small investor, is that with an MMA you will be required to maintain a fairly hefty minimum balance.
This minimum balance can be anywhere from $1,000 all the way up to $50,000. If you fall below the agreed upon balance you will incur a lot of fees and you will likely lose most, or all, of your interest. It is important to note that with increased competition there might be online banks that won't require you to maintain a minimum balance. You can do a search online to see what options you have.
Another downside is that you will probably be limited in the number of checks you can write each month so don't think of an MMA as a replacement to a regular checking account.
Using high interest money market accounts to grow your investments safely is an increasingly popular option for many investors. Just make sure you fully understand any restrictions that go along with your account before you open it. You don't want any unexpected surprises when it comes to your money.
Thank you for reading,
Posted by: Jose Amoros
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