A money market account is similar to any savings account which you have in a bank with the difference lying in the rate of interest this account pays. It is usually higher than the savings account interest rate and it also enables the account holder with a limited cheque writing ability. Overall, a money market account offers the benefits of both a savings account and a checking account but it typically requires a higher minimum balance deposit, which is likely to be $500 in the starting as compared to a $5 investment for a savings bank account. This account is insured with FDIC (Federal Deposit Insurance Corporation).
Creating a Money Market Account
Unlike a savings account, you cannot just walk into a bank with your documents and just about open an account with a nominal balance deposit. It is a bit more than that. With a money market account, you get higher interests and the best of both worlds so you need to be careful and smart.
Look around and compare the plans and offers that each financial institution has to offer to their potential customers. It is very much similar to buying a car. You do not jump into the first model you see, and even if you have a favorite sorted out, plans change when you see a better model with even more features at the same budget. Check the yields and terms and conditions offered by each financial institution before opening your money market account. Even though the core objective of such accounts is the same, there are other variations and benefits offered which differs from one institution to another. Your decision should be driven by the following factors:
- The frequency of checks you want to be able to write. Even though a money market account offers the check writing facility, it is limited and hence you should calculate the number of cheques you will need and then select a bank which has a range that covers this digit.
- Every bank account has a limited fee-free withdrawal option. You need to estimate the number of withdrawals you plan to make and select the bank which offers the most number of free transactions.
- It is not always possible to maintain the minimum balance mark and the moment your finances dip below the mark, you are charged with maintenance fees and these fees are high. Some even charges for the features they offer. You need to make sure that you go for the bank which has a low minimum deposit balance value and the charges for the services offered are next to negligible.
- The initial deposition determines the type of money market account you will be eligible for since every bank has a said minimum deposit value to meet. Many accounts have the option of opening an account for a low amount of $500. For some, this must be the minimum amount you must have in your money market account to avoid penalties.
While it is not possible to meet every detail, you will definitely find a few which comes close to your requirements. After you have found a few banks which meets your criteria, you can mail them asking for application forms and full details with regard to terms and conditions. Many banks offer the option of online account opening through their website.
If you already have a savings account, you can even check with your bank about the perks and benefits of opening another type of account with them. Many banks offer special perks for multiple account type holders. In this case, you can opt for your bank and a new money market account can be opened with just a phone call as all your details are already present with the bank.
Why Should You Open a Money Market Account?
While it seems too good to be true when you hear a higher interest on a deposit of $500, whereas the same amount will not generate that much interest amount with a savings account, you can rest assured that opening a money market account is beneficial.
- While the option of stock investment, bonds and shares seem more profitable, the risks are higher and there is no return if the market crashes. With a money market account, your money is insured; hence you do not have to worry about a failed market or the bank of your choice dropping down the stock rate. You will get your guaranteed return.
- The benefits offered are similar to your savings or current deposit account and no additional charges or hidden costs will be incurred by the holder.
- Unlike stocks, your money is not fixed in terms of usage with a money market account. The money which is getting deposited in the money market account can be accessed easily and hence they are often kept as emergency funds. Multiple modes of transactions when it comes to liquefying the money makes it a popular choice.
- Lastly, the interest rate returns are higher than any other account type.
Where to Opt for while Opening a Money Market Account
Since these types of accounts are managed by the financial institutions, it is better if you opt for known banks when you are planning to open a money market account. Credit unions are an option too, but banks offer more stability and features. And if you are a loyal customer, you earn more perks.
Is Money Market Account a Good Investment?
The security of a physical bank building, the backing of a federal insurance corporation and a higher yield, these are the perks which a savings bank account does not offer. While investments in shares and bonds will yield more returns, a technical glitch and the whole market will crash. As a result, your investment too goes down the recycle bin.
While the interest returns with a money market account might not be as lucrative as a stock investment, the added security and the option of easy cash flow at the tip of your hands are what make this option worthwhile. As a person with a monthly savings of at least $3000, you can use a part of this fund and invest in a money market account. The calculations are simple and you are not required to constantly check your phone and stress over the ups and downs of Wall Street. Sometimes, boring too has its perks.