3 Things You Stand To Gain With a Money Market Account Over a Savings Account
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The easy accessibility of a number of overt forms of money market instruments has made most money-centered financial institutions offer money market accounts which can be specialized deposit accounts. They function similarly to ordinary checking and savings accounts, but with one notable difference:
In the case of banks/other financial institutions, your monies are used by the institution to invest in the financial markets.
It is consequently invested in low risk instruments, in a bid to protect your capital from any form of risk. Money market accounts have other features: like any other bank accounts they are protected by Federal Deposit Insurance Corporation (FDIC) and if your bank is FDIC, then you are safe.
Money market accounts are considered high-grossing than normal savings accounts and financial advisors advise their clients to open money market accounts. Though they come with a some advantages, they do come with some limitations in the following ways. As is the case with many saving accounts, you may find that access to the funds may be restricted; and there may be demands for certain minimum balances to be maintained. However, if all these requirements can be met, Money market accounts possess three principal advantages that can enhance yield.
1. Higher Interest Rates
The first benefit of money market accounts compared to savings accounts is the interest rate that they offer. The FDIC also notes that money market accounts have a higher interest earning rate up to twice of a regular savings account. The stated actual rates may differ from each other, but overall, you will realize a substantial improvement in the interest earned for money market account.
Money market accounts help in offering an even higher interest rate for many financial institutions due to the flexibility in investing the monetary amounts deposited with them. The buying power of money market account is different to the buying power of savings where borrowers use for restricted usage possibility; however, under money market accounts, the banks make investment on the government bonds, CDs and other securities which are not present in savings.
2. Elevated Balance Requirements
The money market account usually comes with higher minimum balance requirements to prevent charges. Such sums can initially vary in the range of $ 5 thousand and can increase up to $ 10 thousand, $ 25 thousand, or more. Here, accounts with more significant minimum deposits are likely to offer better interest rates.
Balancing a large amount in the money market account benefits in that interest begins to accumulate faster when you have more of it.
3. Restrictive Withdrawal Policies
Money market savings accounts use different terms and conditions that prevent overdrafts on the account fundamentally. There will be charges such as compulsory monthly maintenance fees as well as minimum balance charges as well as restrictions on the number of transactions that may be carried out especially withdrawals within a particular month. Going past these limits attracts added charges, and since you have made your money earn interest, you might end up paying the extra charges.
Also, some banks have conditions that a given amount must be deposited for a certain time before it is disbursed for the requested monies leading to discourage withdrawal of the unnecessary urges. These rules have been devised to ensure that one’s account balances remain high and continue to earn from good interest rates.
Understanding the Difference: The Emergence of Money Market Accounts and Money Market Mutual Funds
To sum up, it becomes appropriate to differentiate between money market accounts and mutual funds. This is evident in that both present low returns and low risk but there are a number of distinguishable features. MMM fund is different from the money market account since it is not insured by FDIC hence its investors do not enjoy the same capital loss as that of money markets. Also, the mutual fund operation is generally investing in another account; thus, there are chances that it involves brokerage, which is not usual with banks.
Is a Money Market Account Right For You?
These are useful for individuals who have medium term goals since money market account bears interest. They mean a potential to get high, even higher than average, interest rate with the preservation of safety – risk. It is advisable to use money market account for medium & long-term goals that may include purchasing a house or a car in few years’ time.
For long-term objectives, you might examine different forms of saving such as retirement plans or long-term CDs which provide fewer options for withdrawal. Premature capital planning for these possibilities could prove disastrous if not for the help of a professional financial advisor to guide and make sure that people are achieving the right goals and objectives of financial investment plans.
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