If you have a large chunk of cash sitting around, you might want to consider investing in a money market account. In times past, it was frugal for a financially savvy individual to place money into a savings account in order to earn a decent return. These days, however, the interest rates on savings accounts are so low that you’d have to wait thirty years before seeing a return. A money market account is a more lucrative alternative, but doesn’t require the long-term investment of a stock or bond.
Investing in a Money Market Account: Minimum Balance
Like some checking and savings accounts, most money market accounts do require that you keep a minimum balance, which is usually higher than that of other types of bank accounts. For example, some money market accounts require that you hold a balance of at least $2,500 at any given time. The good news, however, is that the competition between financial institutions is continuing to increase daily, so minimum balances are decreasing as a way to lure customers in.
Investing in a Money Market Account: Withdrawals
Most money market accounts come with both an ATM card and a check book, just like a checking account. However, they usually require that you do not exceed a maximum number of withdrawals. For example, a money market account may limit the number of checks you write to six per month and allow no more than ten withdrawals in a thirty-day period. If you go over your scheduled limit of withdrawals, you will pay a small fee (usually between $3.00 and $5.00).
Investing in a Money Market Account: Deposits
Unlike other types of investments, you can make as many deposits into your money market account as you’d like. There are no fees for putting more money in, and it is often as easy as transferring funds from your checking or savings account into the MMA.
Investing in a Money Market Account: Interest
As mentioned above, the interest rates for money market accounts far exceed those for savings and checking accounts. The interest will be compounded daily and paid monthly, which issues another advantage. Essentially, you continue earning interest on the interest paid to you each month. Some money market accounts also have higher interest rates when you increase the balance in the account.
Investing in a Money Market Account: Managing the Account
Just like with your checking account, you’ll be given a paper register in which you can keep track of your deposits and withdrawals. Each month, you’ll also want to factor in the interest accrued.
Money market accounts are increasing in popularity all over the U.S., and now is one of the best times to open one. It is often easiest to simply open your money market account with your current financial institution so that you can keep everything in one place. If you are already a customer, you might be given a better interest rate than would a customer who has never banked there before.