What Are Top Money Market Accounts?
The top money market account is the one that gives you the best features for your individual needs. You want a good interest rate, of course. But ease of access to your money and the size of the minimum balance are also important. To choose the best money market account for your needs, you should understand what money market accounts are, how they work, and how to find top money market accounts with the features you want.
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Identification
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When you open a money market account you loan money to a money market fund, which then invests it in short-term securities, primarily corporate and government bonds. Because the securities are short-term, the fund portfolio changes constantly and the rates the fund earns and pays you also fluctuate. Individual money market account interest rates are usually updated weekly.
Features
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Money market accounts are considered a hybrid of checking and savings accounts because you earn interest and you can write checks on the account. The number of checks is limited, usually from 3 to 6 each month. There are penalty fees for excess withdrawals or for dropping below the minimum balance. Another feature of money market funds is that most can be set up as IRA accounts or included within existing IRAs. Most money market funds are marketed by banks and credit unions or by non-banking financial institutions such as brokerage firms.
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Size
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The largest non-bank money market funds pay excellent rates. Fidelity Cash resources is the largest money market fund provider, with 2007 holdings of $110 billion (NASDAQ symbol FDRXX). Fidelity is followed by Vanguard (NASDAQ: VMMXX) and Charles Schwab Funds (NASDAQ: SWWXX). Funds like these tend to offer the best rates, but they also have high minimums (up to $25,000) and allow few withdrawals.
Function
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Banks and credit union money market accounts average somewhat lower rates. However, they generally have lower minimum requirements and allow more withdrawals per month. In addition bank and credit union money market accents are insured by the FDIC or the National Credit Union Administration, just as regular checking and savings accounts are. Top money market funds from banks and credit unions usually require $1000 to $2500 minimums.
Considerations
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If you are prepared to invest a fairly large sum in a money market fund, a high-minimum, high return fund such as Fidelity, Vanguard, or Schwab will be your top money market account choice. These funds are ideal for IRAs since the money must stay in the account so limited withdrawals are not a consideration. With banks and credit unions the selection is wider, since nearly all banks offer money market accounts. You can find an up-to-date list of top bank money market accounts at bankrate.com or bankaholic.com. For listings of high-rates from all types of money market funds, similar lists are available from financiaweek.com and money-rates.com. The top money market accounts aren't necessarily the highest-paying ones at a given time. Rather, you want to find a fund that pays above average rates on a consistent basis.
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