What is a Money Market Account
A money market account is a bank account similar to a savings account with some variants. In a money market account, you deposit money just like a savings account but at a higher interest rate. It requires you to maintain a higher minimum balance as compared to the savings account and you can withdraw money for a restricted number of times only.
Money market accounts were introduced to encourage people to save money and cut down on their unnecessary spending. In the bargain, people are offered high interest rates. This will help banks lend money to small businesses and people are assured of good returns on the investment as well.
Banks offer high interest rate for money market accounts as compared to the savings accounts by making people deposit a higher initial amount that is as big as US $1000 to US $2500. In addition, investors cannot close their accounts quickly and the minimum time limit for closing the account is six months. If one opts to close the account before the prescribed time limit, they need to pay heavy penalties, which may lead to loss rather than making profit.
Further, banks don’t charge you with monthly fees, which is an added advantage for the investors for sure. The interest rates can go high to attract customers initially, but remember you can earn only if you invest your money for a longer time.
In a money market account, account holders can withdraw money for only three to six times and are required to maintain the minimum balance. Although the money market accounts are meant to help people earn money, the repeated withdrawals can defeat this purpose. Thus, these restrictions are applied.
A money market account is a best option if you have large amount of funds at your disposal. It could be funds made by selling off your old assets such as house, land, and car. Some people argue by saying that stock markets can yield you better returns in comparison to money market account. However, looking at the market uncertainties it is always the best option to go for. Your funds are always safe in a money market account and further, they yield high interest rate when deposited for a longer period of time.
Investors should clearly understand the bank’s requirements, such as initial deposit, minimum balance, rate of interest, and penalties in case of breach. This may differ from one bank to another, and thus, investors need to carefully study them before investing their money. This can be done by finding out bank’s performance for the past quarter or two and take a decision if it would be safe in investing with the bank or not.