Everyone enjoys saving money, but doing so is often easier said than done. Many Americans funnel a portion of their earnings into a savings account, creating a valuable cache of money for future use. Most of these accounts are static entities that are simply added to over time, giving you few opportunities for growing interest and, as a result, saving even more money. That’s where money market accounts come into play. These accounts store your saved money but also add to it by accruing a large amount of interest. If you’re interested in what one of these accounts can do for your finances but are unsure where to start, read on for an introduction to the benefits of opening your own MMA.
What is it?
A money market account can most easily be described as a savings account with unique properties. As previously mentioned, most savings accounts are simple repositories for your hard-earned cash. A money market account takes that cash and grows it via interest. While there are other types of savings accounts that can earn you interest, MMAs are well known for earning you higher rates. According to Jim Probasco at Investopedia, this extra interest is incentive for not only keeping the account, but growing it. Another unique aspect of money market accounts is that they can also function like traditional checking accounts. Instead of simply leaving your money in your account, you can access it through using a debit card and writing checks. In short, opening an MMA means you’ll save money, make money, and have the freedom to spend that money with ease.
How does it work?
The inner workings of a money market account are quite simple. After opening the account, simply begin adding your savings to it. Although the rate at which you gain interest will differ depending on your account type, most accounts are compounded daily and paid monthly, according to a guide published by howstuffworks.com. In addition to the interest you will earn, other benefits to opening a money market account include insurance protection and the aforementioned ability to access your account via cards and checks. However, there are certain restrictions and prerequisites you may have to meet before opening an MMA. First, an upfront minimum deposit may be required. Second, depending on where you open the account, you may not be permitted to exceed a set number of transactions per month, which could be as few as six. Lastly, your account may require you to maintain a minimum balance in order to avoid fees.
Should I have one?
Before you rush to open your own money market account, it’s important to take a look at your own finances and lifestyle. Despite the many benefits involved, MMAs aren’t necessarily right for everyone. Being able to afford the upfront deposit and maintain the minimum balance is a big deciding factor. If you routinely lower your account below the minimum, expect to pay fees. A traditional savings account might be the better fit in that situation, and a normal checking account is recommended for those who make frequent withdrawals. On the other hand, if you already have a “rainy-day” fund or the required minimum balance sitting in another account, opening an MMA is a great way to earn interest with little upfront work on your part.
Now that you know the ins, outs, and benefits of opening a money market account, the only thing left for you to do is assess your situation and decide if saving with an MMA is right for you.