About Money Market Accounts

Video Transcript

"Okay, this is John Pinelli, Financial Representative. Gonna be talking to you today about money market accounts. A money market account is similar to a savings account at your bank. You deposit X amount of dollars, and under a hundred thousand dollars it is insured by the FDIC, and that money is basically growing at whatever rate the bank is going to offer you, and at that specified rate it's very low risk. What the bank is able to do, then, with that money is they're able to turn around and lend it out or invest with that money in other ways, and that's how they're able to offer you that small percentage, whatever it may be. The banks goal, then, with that money is to, in turn, make a percentage that is higher than what they are paying you. Keep in mind with the money market accounts, it is FDIC insured, so, the bank goes kaput, you're still going to have your money. Very safe, very...no risk at all involved with these. And it's a good way to build savings and have easy access to your money when you need it. This is important to distinguish between a money market account and a money market fund. In a money market fund, these institutions are holding securities on your behalf. And the money market funds can be more difficult to access. So they may hold, when I say securities, they may hold things like stocks or bonds or mutual funds, etcetera, but keep in mind that with that fund it's going to be a little bit more difficult to access that money when you need it, and it's going to carry a slightly...slightly higher risk. But also, in essence, a slightly higher return. A money market account will typically offer you an interest rate between one to five percent at the very highest. And, typically that rate is very stable. It's guaranteed by that institution, and basically it's a rate that isn't going to provide you with great long-term growth, but it will generally keep pace with inflation, or maybe slightly exceed the rate of inflation, which inflation has been about three to four percent on an annual basis, looking historically. With the money market fund, it's essentially like a mutual fund, where you're getting a higher rate of return potentially, maybe between five to ten percent, so it's generally not as well defined and, but with that it comes with potential for a higher gain. So this has been John Pinelli talking to you today about money market accounts."