Benefits of a Money Market Account

What if your savings account had better interest rates? What if you could make more money with a checking account? This is where a money market account can help you make money on your savings!

A money market account is an account that grows interest at a faster rate than a generic savings account while additionally allowing the owner to have limited check-writing abilities. Therefore, a money market account offers the owner benefits from both a savings and a checking account! A money market account typically requires a higher starting balance than a savings account and is Federal Deposit Insurance Corporation (FDIC) insured.

Deciphering Money Market Account Mechanics

Money market accounts offer higher annual percentage yields than the average savings account because the vehicles can invest in numerous higher-profit options from which traditional passbook accounts are restricted. As a result, banking institutions are the ones who provide access to insured money market deposit accounts (MMDA). These accounts offer FDIC backing and the portfolios are made up of short-term, liquid securities. The reason banks can offer a higher interest rate through MMDA’s is that they require a higher minimum balance. Additionally, these accounts have restrictions on the rate of how fast an owner can take out his or her money.

The withdrawal restrictions make MMDAs less liquid than checking accounts, but more liquid than bonds. Financial institutions use money market accounts to pursue investments through vehicles like certificates of deposit, government securities, and commercial paper. These investments offer better yields than those of a general savings account.  The minimum a person is required to deposit funds for an MMDA is dependent on the financial institution he or she is investing with.

Warning: An MMDA is a higher risk investment than a savings account. Due to the nature of the securities that MMDAs use as vehicles, it is possible to lose part of your principal balance in the event of a financial crisis.

If you want to discuss more pros and cons of money market accounts, reach out American Investment Planners today!