The recently growing economy and stock market has made many people eager to invest their money, and many are attempting to learn all they can about money markets. Despite being around for many years, many people are still not familiar with money market accounts (MMAs) or how they work. Money market accounts are similar to savings accounts but offer better returns on investments. There are various types of money market accounts, and choosing the right one often requires the services of a financial advisor. Here is an overview of money market accounts.
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What Are Money Market Accounts?
A money market is similar to a savings account but they typically offer higher interest rates than a traditional savings account. MMAs also offers the options of checks and/or debit cards. Money market accounts also require customers to invest high amounts and keep higher balances. In recent years, interest rates on money market accounts have been very similar to savings accounts despite money market accounts being the more attractive option. Customers looking to invest are advised to consider a few factors, including what current rates they offer as well as what their short-term and long-term financial goals may be.
Money Market Accounts vs. Savings Accounts
Money market accounts and savings accounts may be different yet still have a lot in common. The main similarity is that they both offer customers a place to keep their money while trying to reach their financial goals. The National Credit Union Association and the Federal Deposit Insurance Corporation insure both types of accounts. They also both draw interest and offer ATM access.
Money market accounts offer the check-writing ability, whereas savings accounts do not. The other thing they both have in common is that they only allow customers to make withdrawals of a certain kind so many times in a six- or 12-month period. These types include drafts, payments by check, electronic purchases and debit card purchases. Savings accounts may also come in the form of certificates of deposits (CDs), these CDs require you to keep the money invested for a certain amount of time, typically like 1-3 years.
When Money Market Accounts are a Good Idea
On any given day, savings accounts can be a good idea because they allow customers to save money, which is always a good idea. Savings accounts are good for saving for short-term goals. The longer the money stays invested, the higher the interest may be. For that reason, money market accounts are ideal for medium- or long-term goals. At the beginning of 2019, the average interest rate for savings accounts was 0.09%, while the average rate for money market accounts was 0.15%.
The highest interest rate for savings accounts was 1.90%, while the highest rate for money markets was 2.01%. Credit Karma indicates that money market accounts may pay twice as much interest as savings accounts. They’re also ideal if you’re hoping to save money for a longer period, especially in a situation like saving money to buy a home. The best way to get the highest amount of interest is by keeping as high of a balance as possible.
Alternatives to Money Market Accounts
As appealing as money market accounts can be, they may not be the answer for every consumer. Here are some excellent alternatives to money market accounts.
- Regular savings accounts
- Checking accounts
- High-yield savings accounts
- Passbook savings accounts
- High-yield/high-interest savings accounts
- Certificates of deposit
With so many different opportunities to save money available today, consumers can choose the one that offers the best options for their particular financial situation and financial goals. Fortunately, money markets offer some very attractive options.
