Understanding Money Market Accounts Popularity

Explaining Money Market Accounts Popularity

In the recent past, an increasing number of people are putting their money into money market accounts. This growing popularity of MMAs is largely due to the higher earning power of money market accounts. For an instance, where a regular savings account earns you a 0.10 % interest, a money market account can bring in 1.60%. This is a huge difference, and is often higher than what high yield savings account offer.

What they are

Money market accounts are essentially similar to savings account, but they offer higher returns. In exchange, the customer pays a significantly higher opening amount and has to meet higher minimum account balance requirements.

In addition, in money market accounts, one has limited access to their money and is limited to a certain number of withdrawals per month. With savings accounts, you can withdraw as much of your money as you wish.

Money market accounts also provide check-writing services, albeit on limited basis. This is still a privilege as most account options do not offer check services.

Why money market accounts are all the fuss

You are assured of higher interest rates. Money market accounts offer the highest interest rates among all savings accounts. They are a perfect way to grow your money.

They offer a sure way of saving money. The minimum balance requirements imposed keep you disciplined so you can save your money longer. The longer you can keep your savings, the more you get to earn.

They have very little risk attached, which means less likelihood of losing your money. This is the primary reason why conservative investors have for long preferred MMAs as their savings option of choice.

Factors to consider when choosing an MMA

1. Account opening and maintenance requirements. This includes the minimum opening amount and minimum account balance. Go for an amount you are comfortable giving. If the minimum balance is rather high, ensure that you won’t be tempted or forced to withdraw from the account to meet a need as that will compromise your earnings and account privileges.

2. Interest rate. If the MMA you are enquiring about offers the same interest rate as your savings account or less, there is no point in opening the account. Look for MMAs with higher interest rates than you would get from a savings account. Actually this is the only reason why so many people are opting for these accounts.

3. Cost. How much is the fee if you exceed the allocated number of transactions per month? How much do they charge if the minimum balance drops below the required amount? Are there additional penalties you may face? All these add up to the total cost of maintaining the account. You shouldn’t have to pay too much to keep your MMA active, and especially when there are many competitors offering the same.

4. Level of liquidity. A good money market account should not be liquid; otherwise it operates as a checking account. In other words, it should have a limit on the number of transactions you can make per month, and a cap on how much money you can draw out at any given time.

5. Direct deposit support. A good money market account should allow you to set up direct deposit from your paycheck or a linked savings account. This ensures that you make regular transfers into the MMA, thus increasing your principal and earning power.

6. Incentives. Will the bank or credit union you are opening the MMA at reward you for your business? Some of the incentives to look out for include reward points, airline miles, higher Annual Percentage Yield (APY) and bonus interest rates.

7. FDIC Insurance. Money market accounts are required by law to have Federal Deposit Insurance Corporation (FDIC) insurance. But it helps to know how much of what you put into the account is covered. If for instance each account is covered for a maximum of $250,000 (which happens to be the seemingly accepted average); any deposit up to this amount will be fully insured. However, amounts higher than $250,000 may not be liable for compensation. Read the bank or credit union’s insurance policy and get clear answers on exactly how much of your investment is covered, just to be sure.