The Attraction of a Money Market Account
Putting cash into a money market account can be an effective means of saving, because these accounts provide a number of advantages other savings methods do not. Like a savings account, a money market account keeps your money safe, but it typically pays a higher rate of interest. Money market accounts also provide easy access to your money, making them suitable for building an emergency fund.
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Safety
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If your bank carries full FDIC insurance, the money you put into your money market account is protected up to a limit of $250,000, as of 2011. This coverage limit allows you to deposit a significant amount of money and not have to worry about losing a single penny. This insurance protection remains in place even if the bank you choose goes out of business or is taken over by another financial institution.
Flexibility
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A money market account provides a level of flexibility and access you cannot get with a certificate of deposit (CD). If you need to access the funds in your money market account, you can write a check or use an automated teller machine (ATM) card to obtain the cash you need immediately. This contrasts with a CD, which requires you to keep your money invested for a set amount of time.
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Emergency Fund
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A money market account is a suitable vehicle for building an emergency fund, because it allows you ready access to your money as well as providing ongoing earnings on your deposit. You can set up direct deposit to have part of your paycheck deposited into your money market account, helping you build a larger balance more quickly. If you have built a sizable fund in your money market account, it can provide money if you lose your job or suffer a financial setback.
High Interest
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Money market accounts tend to pay higher rates of interest than savings and checking accounts, making them a good option for keeping your short-term money safe while earning a higher return on your deposit. When shopping for a money market account, consider the interest rate and the balance requirement, because some money market accounts pay a higher rate of interest for accounts with a higher balance.
Money Market Limitations
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Money market accounts often carry restrictions not found in traditional checking and savings accounts. For instance, many money market accounts have high minimum balance requirements, sometimes in the thousands of dollars. In addition. money market accounts often place restrictions on the number of monthly transactions, including checks and ATM withdrawals. It is important to review these restrictions before you open an account.
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