Money market accounts and savings accounts are nearly identical, except that money market accounts offer better interest than a savings account. Money market accounts also offer some check-writing privileges. In exchange for these benefits, most institutions require a high minimum balance for money market accounts, averaging between $500 and $2,500.
Don’t confuse money market accounts with money market funds. Both money market accounts and money market funds are used to “park” cash and still maintain liquidity. Money market funds, however, are a type of mutual fund. To learn about money market funds, turn to Chapter 3. Money market accounts, offered by banks, savings and loans, and credit unions, are a good way to keep money that you may need to get your hands on in a hurry. Money market accounts earn more interest than you would with a savings account without risking a loss in value (which could be the case if you put the same money into stocks and had to turn them into cash quickly). For medium-term expenses, such as saving for a down payment on a car or furniture, a money market account can be a good choice. Money market accounts can also be a good place to put the three months’ salary that you set aside for emergencies. Money market accounts function like a checking account in that you can write a minimum number of checks (usually three) on the account each month. However, in some cases, money market account holders are allowed to make unlimited free deposits and withdrawals from ATMs in their network.
If you only write a couple of checks a month, a money market account might be worth considering. But usually a hefty fee ($10 to $20) is charged if an account holder writes more than the number of checks permitted. Any additional interest a money market account allows you to earn will quickly be chewed up if you have to pay for extra checks. Some people use a non-interest-bearing checking account for paying regular bills, and then keep their larger reserve in a money market account to gain a higher rate of return. In fact, some financial institutions offer to link a money market account with a checking account, so if your regular checking account doesn’t have sufficient funds to cover a check, the institution automatically transfers money from the money market account to the checking account. Interest rates for money market accounts vary widely and depend on the amount you deposit. When money market accounts were created in 1982, people could earn 10% or more interest on them. During the next 10 years, interest rates for money market accounts bobbed up and down but never got back to the early rates.
When you open an account, you get the prevailing interest rate as set by the bank. Most banks change the rate once a week — every Monday morning, for example — and they give you a phone number to call to check the rate. Your rate may improve if you deposit more funds, but often you have to reach a threshold of $15,000 or $30,000 to see a significant increase in your rate.
Don’t confuse money market accounts with money market funds. Both money market accounts and money market funds are used to “park” cash and still maintain liquidity. Money market funds, however, are a type of mutual fund. To learn about money market funds, turn to Chapter 3. Money market accounts, offered by banks, savings and loans, and credit unions, are a good way to keep money that you may need to get your hands on in a hurry. Money market accounts earn more interest than you would with a savings account without risking a loss in value (which could be the case if you put the same money into stocks and had to turn them into cash quickly). For medium-term expenses, such as saving for a down payment on a car or furniture, a money market account can be a good choice. Money market accounts can also be a good place to put the three months’ salary that you set aside for emergencies. Money market accounts function like a checking account in that you can write a minimum number of checks (usually three) on the account each month. However, in some cases, money market account holders are allowed to make unlimited free deposits and withdrawals from ATMs in their network.
If you only write a couple of checks a month, a money market account might be worth considering. But usually a hefty fee ($10 to $20) is charged if an account holder writes more than the number of checks permitted. Any additional interest a money market account allows you to earn will quickly be chewed up if you have to pay for extra checks. Some people use a non-interest-bearing checking account for paying regular bills, and then keep their larger reserve in a money market account to gain a higher rate of return. In fact, some financial institutions offer to link a money market account with a checking account, so if your regular checking account doesn’t have sufficient funds to cover a check, the institution automatically transfers money from the money market account to the checking account. Interest rates for money market accounts vary widely and depend on the amount you deposit. When money market accounts were created in 1982, people could earn 10% or more interest on them. During the next 10 years, interest rates for money market accounts bobbed up and down but never got back to the early rates.
When you open an account, you get the prevailing interest rate as set by the bank. Most banks change the rate once a week — every Monday morning, for example — and they give you a phone number to call to check the rate. Your rate may improve if you deposit more funds, but often you have to reach a threshold of $15,000 or $30,000 to see a significant increase in your rate.
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