What is a Money Market Account?
You may know that saving money is important. However, knowing it and doing it are two different things. It is a challenge to save money when you do not truly know how to go about saving. There are a number of ways you can go about saving money. Long gone are the days where you store money in a shoebox under your bed. Well, I hope you are not storing money under your bed.
If you are keeping money at home, you should keep it in a safe that will protect it from fire. When you have money sitting around your home, you are opening yourself up to be robbed or have the money catch on fire. If you have it in a fire-safe, it is protected. If keeping your money in your house is not for you, there are many places in which you can save your money. Among many of the places you can store your money, there are savings accounts, certificates of deposit (CD) accounts, and a money market account.
What Is A Money Market Account?
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It is important to understand what a money market account is. It is unique in that a money market account is a hybrid of checking and a savings account. This type of account usually has checks or debit card so you can have a set number of transactions per month. In addition, historically, these accounts have a higher interest rate than a typical savings account. You may find today that they are offering the same interest rates as a savings account. Most of these accounts have balance requirements that are higher than many other accounts. This means that you have to keep a certain amount of money in these accounts at all times. You also need to have a high minimum deposit to open the account.
These accounts are Federal Deposit Insurance Corp (FDIC) insured so that you can feel comfortable leaving your money in these accounts. You will not lose the money that you have in these accounts, even if the bank fails. If you are interested in this type of account, you should look at all the options that are available to you from different banks. You may find that there is no benefit for you to have this type of account.
What Are The Benefits Of A Money Market Account?
There are some benefits to a money market account. When you are making decisions about your banking needs, it is important that you understand all the positives and negatives to a specific kind of account.
1. FDIC Insured
Money market accounts are FDIC insured so you have peace of mind when you put your money in these types of accounts. You do want to verify how much your account is insured because each bank and account may have a different amount of insurance. In most cases, when your bank offers a money market account, they are offering their best rates. You should review all of the accounts that your bank is offering you so that you can compare them to determine which one is right for you.
2. Easy Access
Money market accounts may allow you to access your money much more easily than a savings account. If you think you might want quick access to your money, then this type of account may be the right one for you. When you are making a determination about these accounts, you should find out how quickly you can access your money. You should also find out how quickly a deposit you make may become available to you. If you make a deposit today and it takes a few days to become available, that is information that you want to know.
What Are The Negatives To A Money Market Account?
In an effort to have full working knowledge of a money market account, it is important to understand the downsides associated with a money market account.
1. Higher Interest Rates
In the past, money market accounts have yielded higher interest rates than the average savings account. That is not always the case today, so it is important that you understand the interest rates available from any competitive savings accounts.
2. High Balance Requirements
That means when you open the account, you need to deposit a large amount of money, and then you need to keep a high amount of money in the account. If you do not keep the required amount in the account, then you are subject to high fees. You should make sure you understand the balance requirements and associated fees before opening an account.
3. Easy Access Can Be Tricky
Most money market accounts allow you easy access to your money, which may seem like a positive. However, if you are trying to save money, then it may not be a good thing if you can take out the money quickly. Also, easy access to money may cause you to go under the balance requirement. Then when you go under the requirements, you are subjecting yourself to fees. Since you can easily access the money, you may not remember that you have a limit and then subsequent fees. It is easy to get yourself in a tough spot.
How Is A Savings Account Different From a Money Market?
There are some differences between a money market account and a savings account:
The biggest difference is that a savings account does not have checks associated with it.
You will not get a debit card with a savings account.
You cannot use your savings account to pay for items at a store. You usually get an ATM card so that you can withdraw money from your account through a machine, or you can go into the bank to withdraw the money.
Usually, you have to have a checking account associated with your savings account. Typically, you can transfer money between the two accounts.
In the past, savings account interest rates have been lower than those of a money market account. Things have been a little different recently and savings accounts have been getting the same interest rates as money market accounts. One of the biggest perks to a savings account is:
Savings accounts require a lower balance within the account. You do not have to worry about keeping a high amount of money in your account without getting fees. You also need a lower minimum amount to open your savings account than you do with the money market account.
Check out today’s savings rates, and if you find a suitable option, you can open a savings account right now:
How Is A CD Different From a Money Market?
A certificate of deposit, commonly known as a CD, is a little different from a money market account. Before you make a decision about the type of account you want, it is important to know the details of a CD.
Money Is “Locked” in a CD for Some Time
This type of account locks you in for a certain amount of time. That means that when you open a CD, the expectation is that your money is going to remain in this account for an agreed-upon time. You are able to withdrawal your money sooner than that time frame, but there are fees and penalties associated with doing so.
Various Types of a CD Account
There are several different types of CDs. The major differences between the various CDs are interest rates. Typically when you open a CD, you are locking yourself into a certain interest rate for the length of the CD. That is regardless of what happens to interest rates. If they rise or fall dramatically, your CD is not impacted. The various types of CDs account for changing interest rates. You may also be able to find a CD that does not charge you a fee for withdrawing your money early.
What Is The Difference Between Mutual Funds and Money Markets?
Mutual funds are more of an investment product than a guarantee of earned interest on your money. That is one of the major differences between a mutual fund and a money market.
Mutual funds are not FDIC insured, so you have no promise that your money is safe. Despite not having an FDIC backing, mutual funds are still a safe form of investment because they are relatively low risk.
To obtain a mutual fund, you typically have to get them from a brokerage company, or a mutual fund organization. You may be able to find some banks that offer mutual funds, but they still are not guaranteed.
Money markets often have a limit on how many withdrawals you can make within a one year period.
Mutual funds usually have higher returns on the money than a regular money market account.
Mutual Funds And Investing
Mutual funds are a type of account where a customer puts money into the account and that money is then invested in different securities such as stocks and bonds. Typically, a mutual fund has an account manager that watches the market and moves the money around appropriately based on the current market. The goal is to achieve the highest rate of return on the money that is invested. As a customer putting money into the mutual fund, you are considered a shareholder. As a result, you benefit from the gains by seeing an increase in the money in your account. However, you also suffer losses if the investments lose money.
Taxes
Both money markets and mutual funds allow you access quickly to your money. However, with a mutual fund, when you want to withdrawal your money, you will have to pay taxes on the money you earned. With a money market account, you pay taxes on the money you earn annually when you file your tax return.
What Is Money Management?
Now let’s cover some basics and talk about what is money management, or the money management definition. While in its simplest form, money management is quite simple the management of your money, there is a little more to it than that. It is the point when you take control of your finances and no longer allow your money to control you.
When you do not know how much money you are spending and where your money is in control. The entire intention of money management is to give you a clear understanding of your money and how you are spending it. It helps you create your long term and short term financial goals. It prompts you to take a look at the items on which you are spending money and causes you to pause before you actually spend money.
Some Money Management Basics
Before I give you the information you need about the money market account, I want to touch on some basic information about how to manage your money. There are some simple ways to gain control of your money. When I say simple, I do not want you to think they are all easy. It requires you to change that way you handle your money, which can be challenging for people. Although, I believe once you see how you gain control of your saving and spending, you are more inclined to do more of it.
Track Your Spending
The first way to do this is to gain an idea of how much you are spending and how you are spending it. In an effort to do that you should track how much money you are spending. You can look back over a few months of statements to figure out how much money you are spending and where. This gives you an insight into spending that you probably do not currently have. If you do not know where you are spending money, you probably do not know where you should make adjustments.
Make a Budget
Once you begin tracking your spending, you can create a budget so you can see how your spending relates to the income you have. After you have a budget, you can see the best ways to make your money work the way you want it to. For example, if you know that you want to reduce your debt, that means you want to put all of your money towards paying that. You do not want to have excessive spending that prevents you from paying down your debt quickly. When you are tracking your spending and see how much you are spending and where it makes it easier to make spending choices because you have all the information in front of you.
Other Alternatives to Money Markets
There are some other alternatives to a money market account that allow you to earn just as much interest as a money market account.
Passbook And A High Yield Savings Accounts
There are some savings accounts that you might want to consider, such as a passbook and a high yield savings account. A passbook savings account does not require an initial deposit or have a minimum balance required in the account. This type of account does accrue interest but not typically as much as you might find with a money market.
These accounts are FDIC insured and often have a limit to the number of transfers per month. A high yield savings account is also a savings account, so it does not have checks or a debit card associate with it. These accounts may have more rules than a typical money market account, such as you may have to a set number of deposits into the account to avoid fees.
Checking Accounts
There are also some checking accounts that may be a better option for you than a money market. In some cases, you may be able to find a regular checking account that offers you benefits that are more meaningful than the interest you can accrue with a money market. Most regular applications do not have a limit on transactions, withdrawals, or deposits. They are FDIC insured, but they do not usually pay interest, or if they do, it is a low rate.
High Yield Checking Accounts
There are high yield checking accounts that you may want to consider. These accounts accrue interest at a high rate, which could be higher than a money market account. They may have some requirements that are difficult for you to follow. They may also have a dollar amount that once you reach it, you may no longer accrue any more interest.
Conclusion
In this article, you can find a lot of information about a money market account, as well as other accounts. This should help you find all of the information about the various types of accounts that allow you to save money. When you are making the decision about where to save your money, it is important for you to know all the information.
Money market accounts are a cross between a checking and savings account that allows you to gain interest while having some of the perks of checking account. Savings accounts and CDs do not offer those same advantages but they do not have the same high minimums that money markets have. Each bank offers different rates for the various accounts, so you should be sure to shop around to find the right account for you.