FDIC & Money Market Accounts
A money market account is an interest-bearing savings account offered by a FDIC-insured financial institution with restricted transaction privileges. It is also known as a money market deposit account. The money in a money market account is insured by the Federal Deposit Insurance Corporation (FDIC), which means that even if the bank goes out of business, your money will be protected.
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History
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The FDIC is a governmental independent agency that was created in 1933 after the failure of thousands of banks during the Great Depression. Since the FDIC has been in existence, there have been no problems with consumers losing money that is deposited in banks or credit unions insured by the FDIC. Money market accounts were created in 1982 by the Garn-St. Germain Act to allow banks to compete with money market funds
Features
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Money market accounts are similar to savings accounts, but often pay higher interest and may carry certain restrictions such as a minimum balance. These accounts also place a limitation on the number of transactions allowed per month. Money market accounts provide an account holder the opportunity to earn interest with less risk compared with other financial instruments.
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Benefits
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The major advantage of a money market account is safety and stability. This is a benefit in any market. These accounts are insured by the FDIC up to a limit of $250,000. A money market account is a great fit for someone who wants to conserve capital, rather than grow it rapidly with a more risky investment.
Limitations
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Banking regulations spell out the reserve requirements of depository institutions necessary for an account to qualify as a savings deposit account. Generally you are limited to a maximum of six transfers or withdrawals per month. Only three of those transactions can be checks written against the account. In addition, a larger minimum balance is required to open this type of account. If there is an excess of transactions made against the account, there is usually some type of fees assessed to the customer.
Considerations
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When investing in a money market account, there are several factors to consider. You should be comfortable with the level of customer service and accessibility to the bank. Also, you should definitely consider the interest rate being offered on the account. You should probably shop around to make sure you are getting the best rate for your needs. In addition, you should make sure the minimum balance and transfer fees, and restrictions are something you can live with.
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References
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