Looking at the interest rates paid today, especially on savings accounts, has many people wondering why they are even bothering to open the account. If this describes your situation, you may want to consider a money market account, also known as a MMA.
A money market account is not the same as buying into money market funds, and it has the advantage of not risking any possible loss in value because of the way it is structured.
A money market account, also known as a money market savings account, is:
- Fully insured by the Federal Deposit Insurance Corporations (or FDIC) for those MMAs in banks and by the National Credit Union Administration (or NCUA) for those in credit unions.
- An account that pays interest but typically an interest rate that is higher than that of traditional savings accounts. Typically the interest rate on MMAs is also higher than CDs over the same term.
- Limited to six transactions per month, which include withdrawals and checks written on the account, if checks are provided with your particular MMA.
- A good option for those with significant savings who may also need to have access to those funds as they would with a traditional savings or checking account.
- Risk free as the amount of interest on the account is set and not dependent on market factors on an ongoing basis. In other words, the ups and downs of the financial markets only impact the interest rates as they do savings accounts; you cannot actually lose any of your deposited amount.
The major drawback for many people considering a money market account or money market savings account is the minimum balance required. While each financial institute offering an MMA will have its own requirements, it is typically in excess of five thousand dollars.
This balance must be maintained month-to-month and it is important to understand any fees associated with transactions, either qualifying withdrawals or deposits, on the account. By considering your financial status you can determine if this is a good option to consider, perhaps as a primary savings account with a traditional account for your day-to-day cash flow needs.