How To Understand Facts About Money Market Accounts

Online courses in finance can teach you all about the many different ways you can save or invest your money. A money market account is a kind of mutual fund that works like a savings account. This type of account pays higher interest rates than the usual savings accounts but gives you more access to your money than a certificate of deposit. When you open a bank account with a money market fund, your financial outlay is used to do short term business with treasury bills and corporate bonds that mature in 3 months. The following are typical characteristics of money market accounts:

  1. Variable rates. The structure of the financial market portfolio changes as these interim bonds mature and are subsequently replaced. The result is that interest rates become flexible and are often updated weekly.
  2. Source. Banks, credit unions and other accredited financial establishments offer these kinds of funds.
  3. Share value. Most of them guarantee to maintain a $1 standard value of the shares you've bought. Actually, it is exceptionally rare that the shares would fall below this rate.
  4. Retrievals. You can write a specified restricted amount of checks on a money market account. The hitch is that you have to maintain the stipulated minimum balance or pay the assessed penalty fee. 
  5. Best rate. Compared to bank rates, significant non-bank institutions offer the best money market interest rates. Some accounts that command hefty minimum investments ($5,000 and above) pay much higher rates than other options offered in the finance market. 
  6. Tax-free finances. Selected money market accounts have funds that invest on tax-exempt bonds issued by local governments. There are also treasury bills that have certain tax advantages.

As previously described, the main advantages of money market accounts are they invest in securities that can be quickly converted into cash and they have brief maturity dates. Although they are considered safe investments, one should also consider doing the following procedures before opening one:

  1. Scrutinize the preliminary minimum deposit requirements. All of them require an initial deposit to open an account.
  2. Check the maintaining balance. After opening an account, the depositor has the option to withdraw funds after a month or two but has to maintain a certain amount in the balance to continue earning high interest rates.
  3. Ask about the interest. Compare interest rates on various establishments. The interest is compounded everyday but paid monthly. Inquire about interest rate levels. Some banks offer higher interests for bigger investments.
  4. Seek FDIC (Federal Deposit Insurance Corporation) insurance. Although most banks offer this kind of account, not all are protected by the FDIC.
  5. Learn the maximum number of transactions per month. Many establishments limit cash liquidity this way. It can be through cash withdrawals, money transfers or through checks.   
  6. Finally, differentiate money market accounts from money market funds, as there are major differences. The latter is a form of investment, a lot riskier and is usually insured by SBIC from a brokerage firm.

After checking out these guidelines, you are ready to make your money grow. After all, money market accounts are relatively safe investments; if you'd like to learn about other investment options, you should consider enrolling in an online finance course or two.


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