Money Market Accounts are products that have features of both savings and checking accounts to provide an individual with an opportunity to have flexibility and better interest rate for his or her cash balances. Knowledge on the functions of the money market account enables individuals to make right decision on where to deposit their money. This article will explore more about money market accounts, including how they work, the advantages and the things that you should know so that you can decide if money market accounts will suit your needs.
What is a Money Market Account?
A money market account is offered by the banks and credit unions as a deposit account which has some characteristics of both savings and checking accounts. Compared to conventional savings accounts it tends to provide higher interest rates and therefore is considered a attractive saving product which can still provide moderate flexibility to the saver.
PP = Potential Pitfalls of Money Market Accounts
Higher Interest Rates: As compared to normal stopping facilities, MMAs generally provide better returns in form of higher interest rates. The given rates are often progressive; thus, the more money you’ve deposited, the higher interest you will receive.
Limited Transactions: For instance, MMAs attract federal regulations that restrict the number of specific kinds of withdrawals and transfers to six within a month. This also covers transactions done through the internet banking services, through phone banking services or by use of checks.
Minimum Balance Requirements: Almost all online MMAs demand higher minimum opening and maintaining balance on the account. This balance requirement can be different for quite a lot depending on the institution.
Check-Writing and Debit Card Access: Conventional savings accounts are different from many MMAs in this respect because they give customers check-writing privileges and access to debit cards.
Money market accounts are deposits accounts offered by banking institutions and other financial institutions whereby account holders are able to deposit, withdraw, spend, transfer or invest their funds through checks or other negotiable instruments.
Interest Rates and Compounding
Money market accounts also provide higher interest rates compared to normal saving accounts because of the higher average balances needed to open the account. The interest rates applying to MMAs are normally graduated, that is, the higher the amount of money which one deposits, the higher the rate of interest that can be earned.
Interest Calculation: Interest in as usual compounded daily or monthly and is credited in the account monthly. This means that you earn interest on the initial deposit alongside the interest which in the process enable the money to be compounded through the period of investment.
Tiered Rates: Most of the MMAs have a tiered system of the interest rate whereby a higher balance attracts a higher rate of interest. For instance, an account may give 0. 4% for the first $ 10 000 on the average balance as well as 0. 1.99% ‘’ for balances above $10 000; 00% APY on balances up to $10 000. This structure encourages the holder to keep more balances in his or her account.
Account Access and Transactions
While MMAs offer competitive interest rates, they come with some restrictions:While MMAs offer competitive interest rates, they come with some restrictions:
Withdrawal Limits: MMAs offers six withdrawals and transfers of those types of accounts per month according to federal regulations. These are Transfer by electronic means such as the internet or a phone, Check and Debit Card payment. Deposit made during this period in the bank branches or at the ATM counters and cash withdrawals done in the bank counters only were not considered within this limit.
Check-Writing and Debit Card Use: Often an application for an MMAs implies check-writing facilities as well as debit card. This added manoeuvrability can be helpful in compared to other accounts such as a savings account where these characteristics may not be available to a user. However while it can be seen that check-writing and use of debit cards are even more convenient than cash, they are also subject of the federal regulation that limits the number of monthly transactions.
Minimum Balance Requirements
There are several conditions as to opening and operating a money market account, and one of these is that you have to maintain a certain amount of balance. These requirements vary by financial institution:These requirements vary by financial institution:
Opening Balance: Most of the MMAs demand that a client invest a certain amount of money when signing up, which ranges from $ 1000 to $ 10,000 or even more. Sometimes, if the minimum balance that one is supposed to maintain in an account is high, the interest rate given for the account could be better.
Maintenance Balance: To have the actual interest rate that is being advertised and not attract these charges, there are times that you have to meet a certain balance. This can be in form of fees or via the interest rate, therefore maintaining this balance is very vital.
Money Market Accounts Working and its Advantages
Higher Interest Rates: The main benefit of an MMA is that there is usually a possibility of earning higher interest more than the simple savings account. This can be especially significant for those having higher balances and the need to increase the profitability of their investments.
Liquidity and Flexibility: Compared to checking accounts MMAs are less liquid but more accessible than regular savings accounts. Writing checks and debit cards make the operations more flexible when it concerns your funds’ control and accessibility.
Safety and Security: Money market accounts are also similar to savings account in that they are usually backed by the Federal Deposit Insurance Corporation up to $250,000 per client, per banking institution. It is insurance of your money, in case a bank collapses.
Better for Larger Balances: Like with most things in life, MMAs are specially suitable for those willing to invest a large amount of money. Higher rate of interest and the slab rates are favorable for customers who are in a position to maintain higher amounts of balances thus offering better returns on savings.
Considerations and Drawbacks
Higher Minimum Balance Requirements: The requirement to maintain a certain amount of money on the account can, in fact, act as a drawback for some people. The balance required can be miniscule to the extent that failure to attain the balance attracts fees or lower interest rate.
Limited Transactions: This is though not very suitable if one needs to have many accesses to the funds as there is federal limit on withdrawals and transfers. If you usually require the making of transactions, you need to get a checking account.
Interest Rate Variability: On money market accounts, interest rates can be variable as they are in other accounts influenced by the state of the economy and the change in monetary policy. This implies that although you may set your interest rate highly to ensure you attract as many clients as possible it may reduce with the entrance of other players in the market.
Fees and Charges: Certain MMAs may charge penalties on the accounts that fail to meet the minimum balance or many transactions. Savings account doesn’t entail any charges and therefore, clients do not need to worry about any charges they might face when opening the account.
Conclusion
Money market accounts show a fusion of factors derived from both savings and checking accounts where it makes slightly higher interest as a saver than what is offered in a savings account but as flexible as a checking account. They are especially advisable for those people who have higher balances which allow to receive more interest though still remain somewhat rather free. User should be cautious of minimum balance required to maintain an account, the number of transactions allowed for the account and other charges that may be levied on the accounts.
Education on money market accounts will enable one determine whether or not it fits the need of an individual. Whether you are trying to accumulate more and more money or trying to handle more money, whether you want a more versatile account that will allow you to write checks, an MMA can be of much utility.
