How Do Money Market Accounts Benefit Me?
Money market accounts, offered by many banks, are flexible hybrids that allow customers to save money that is fairly easily to withdraw but also earns interest. These accounts are ideal for those trying to save money for emergency funds or a particular personal project. They have several notable benefits over checking and savings accounts.
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Money Market Account
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Money market accounts should not be confused with a money market mutual fund offered by a broker. The money market account is offered by the bank and comes with a slightly different interest rate which, while still subject to change, is steadier than the rate that comes with money market mutual funds. While different banks may offer different money market accounts, the choices are relatively few and simple next to the many mutual funds available.
Interest Rates
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The primary benefit to the money market account is the interest rate. The interest will continually add more money into the account, raising the amount of interest the rate generates in a compound interest format that makes as much money as possible for the account holder. This is much more beneficial than checking accounts, which do not typically earn interest; the money market rate may be even higher than rates associated with savings accounts.
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Access
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Money market accounts are easier to access than savings accounts and traditional mutual funds. Typically, account holders can write up to three checks a month from their money market accounts, and ATM withdrawals are often unlimited. Account holders can also access their account over the telephone and the Internet whenever necessary.
Insurance
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Money market accounts are insured up to $100,000 by the FDIC. If the bank fails, the account holder will still receive the funds from the account. Mutual funds do not carry this assurance and have all the risk of market investment.
Market Variables
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Although money market accounts are safer and easier to access than money market mutual funds, they are also subject to market conditions in the same way that many investments are. As the short term market rates change, the interest rate of the account will change as well. This means that the success of the account depends largely on broader economic conditions.
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References
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