With the recent melt-down of the world’s financial markets looming fresh in our minds, and plenty of signs still pointing to a continuation, perhaps even a heightening, of economic instability, it is no wonder that more and more people are searching for safer and more reliable solutions for investing their money. But how can you gain confidence in the security of your investments in an increasingly uncertain market?
Contrary to what some financial gurus would have you believe, you don’t have to be an investment wizard to plan your path towards more financial security for you and your loved ones. In fact, there are several ways that you can start building wealth immediately with little risk involved and not much money down. One way that you can get started right now with just a small initial contribution is to invest money in a Money Market Account, also commonly referred to as an MMA.
What is a Money Market Account?
A money market account is an interest-earning deposit account in which interest is normally compounded daily and paid to the account owner month. Although a money market account is officially a savings account, you can make a limited number of withdrawals per statement cycle without penalty. You also get check writing privileges with a money market account, although they will be limited. This way, you can invest your money and earn interest, while still having easy access to those funds.
Banks and credit unions benefit from investors who open money market accounts too. Here’s a simple explanation of how it works. You, the investor decide to open up an MMA and make an initial deposit and the banking entity then pays you interest on that amount. The bank or credit union can then use that money to provide loans to borrowers, charging the borrower a higher interest rate. This way, the bank makes enough money off of the loan to pay you interest and earn money too.
When is the Right Time to Start a Money Market Account?
If you really want to make a safer investment to start building wealth, then the best time to start a money market account is as soon as you are financially able to do so. Unlike money market funds, the majority of money market accounts are either FDIC (for banks) or NCUA (for credit unions) insured, making them a safe long-term, if relatively low-yield, investment. Still, not all money market accounts are created equal. Below are a few tips that will help you choose the best one for you.
Compare Interest Rates
You’ll want to compare interest rates at different financial institutions before you settle on an account. Sometimes financial institutions offer higher interest rates on money market accounts to entice new customers and you can easily take advantage of such an offer. Likewise, some banks and credit unions will reward account holders who deposit larger amounts with corresponding higher interest rates.
Your goal should be to find an account plan that offers a competitive interest rate along with an initial deposit and a balance limit that you are comfortable with. Ideally, the minimum balance should be an amount that you can afford to leave in and add to over time. That way, you can maximize your money market account’s earning potential. Just keep in mind that the interest that you earn is subject to income tax.
A money market account is basically a savings account with some of the same special allowances that regular checking accounts have such as check writing privileges and monthly withdrawals. But there are certain restrictions that apply. Federal regulations rule that users are allowed a maximum of six withdrawals and three check transactions per statement cycle.
Certain financial institutions may have stricter limits, so be sure to check the regulations of each institution first before signing anything. You want to be sure that you select an account that fits your specific needs when it comes to how accessible your money is. Also, be sure to compare the minimum balance required each month, as those amounts may vary significantly from institution to institution.
Check Fees and Service Charges
In addition to differences regarding interest rates and accessibility, be sure to read up on and compare fees and other service charges when selecting a money market account. Certain fees may apply if you go under the required monthly balance. Fees also might be connected to withdrawals and other transactions. These fees and service charges can also vary quite a bit from one financial institution to another.
Ultimately, the question of which money market account is best for you can be answered by knowing your specific needs. It is up to you to decide which factors will be most important in your selection. But educating yourself thoroughly before you decide is the surest way for you to pick the right money market account and be on your way towards a more secure financial future.