A Money Market Account as a Safe Investment Product

A money market account is offered to bank and credit union customers. It is a financial product that offers a competitive interest rate to customers who are willing to keep their money at the bank over a longer period of time. Holders are required to maintain a balance, and banks usually limit the number of allowed transactions.

Features and Minimum Balances

Credit unions and banks offer accounts with minimums balances in the range of $1,000 to $25,000. Some banks require a minimum of $500. They are FDIC-insured which makes them a safe investment instrument. Even if the financial institution goes bankrupt, depositors would still have access to their money. Some non-bank entities also offer special savings accounts which require higher minimum balances. Holders benefit from this arrangement because non-bank accounts pay higher interest. The downside is that they can make fewer withdrawals. MMAs that trade short-term corporate securities usually pay competitive interest rates. Other funds invest in T-bills and municipal bonds that offer tax advantages or are tax exempt.

Opening and Using a Money Market Account

There are several factors to consider, including interest rates, balance requirements, and charges and fees. Owners are given a register to write their withdrawals and deposits, including the original deposit. Financial institutions offer an account statement, sent by email or mail. Holders can check their deposits and other transactions, interest earned, and monthly charges. They can compare the transactions recorded in the register with those shown in the statement.

What you get is basically a combination of a savings and checking account. In exchange for a higher interest rate, holders have a more limited access to their funds and limited check-writing privileges. Banks assess penalties when the account balance drops below a certain limit. Be sure to ask what the penalty is.

You can use the interest earned to meet your daily expenses or to pay off your credit card balance. Make sure you pay your high-interest card balances because they cost you more in credit charges.

People Who Benefit from MMAs

It is usually people with high, stable incomes that benefit from using a money market account. Those who find it difficult to keep money in a transactional or savings account may want to wait until they are better off financially. This financial product is also a good choice for low-risk investors because it is very safe. At the same time, it offers lower interest/profits than other investment products such as hedge funds. High-risk investors utilize different strategies and invest in high-return products like biotechnology stocks, venture capital trusts, unregulated investment schemes, and contracts for difference. Money market accounts are in the category of safe investments, along with fixed annuities, utility stocks, and brokered certificates of deposit. Whatever the type of investment instrument, it is subject to different types of risks, including tax, liquidity, political, purchasing power, and legislative risk.

Benefits of Having an Account

In general, money market accounts are a good place to keep your savings because they are highly regulated. In fact, funds invest only in fixed-income, short-term securities that offer a good yield. They are regulated by government entities such as the Security and Exchange Commission. Different financial establishments offer money market funds, including banks, brokerages, and mutual fund families. Another beneficial feature of this investment instrument is that it is very liquid. Holders can access their savings in different ways, including online, by phone, and by writing checks. Some banks also offer automatic withdrawals. Owners are paid monthly while their savings earn interest on a daily basis.

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