money market account
-> money market account
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- A money market account is a type of depository account featured by banks that invest in corporate and government securities. Interest is paid to depositors, which depends on the current interest rates set in the money markets. Money market accounts are a good option for persons who want to benefit from a higher rate of interest, but they also go with a higher minimum balance.
Money market accounts are basically savings accounts intended for larger deposits. They are also known as money market demand accounts with a minimum balance of at least $500. However, some banks require that the balance be much higher. There are also restrictions on the number of transaction that can be made within one month.
The money kept in money market accounts is used by banks to make money, and interest rates are higher. Accountholders can make up to 6 withdrawals a month, and exceeding this number of transactions results in penalty fees. Financial institutions are required to discourage their clients from going over these limits. They can either close bank accounts or impose high fees. Banks may or may not count ATM transactions toward the total of transactions. In addition, these accounts are not regular transactional accounts, and different rules apply compared to savings and checking accounts. For example, accountholders can write up to 3 checks every month. The money held in money market accounts is insured by FDIC; so, even if some financial institution goes out of business, depositors’ money is still safe.
Credit unions and bank send accountholders a statement every month, either by email or by mail. This statement includes interest earned, transactions, and fees charged to the account. It is a good idea to check if you have written down all deposits and withdrawals in your register by comparing the entries with the statement. The process of matching them up is known as reconciling. If some entries are missing or incorrect, you have to find what they are and add or correct them. While bank errors are possible, they are not likely.
Money market accounts represent premium accounts and are not the same as money market funds. The latter are investment mechanisms which feature higher returns than premium accounts. Basically, money market funds are open-ended mutual funds investing in debt securities, including commercial paper and treasury bills. Financial intermediaries benefit from them because these funds provide liquidity. In contrast, it is easy to open a money market account at most banks. Money deposited in the account is typically put into investment instruments such as treasury bills, certificates of deposit, and other investment vehicles, which are considered safe. Moreover, these are short-term low risk investments. Accountholders are rewarded for keeping their money at the bank and receive a premium interest which can be twice as higher compared to a regular account.
It should be noted that there is a difference between CDs and money market accounts. CDs or certificates of deposit represent debt instruments that pay at certain rate of interest. Holders lend the financial institution money for a specified period of time so that they can be paid higher interest. In general, the interest rate increases with the maturity of CDs – the longer the term, the higher the interest rate. Money market accounts feature most of the benefits that go with CDs, along with some features of checking accounts. An account can be opened at most banks and other financial establishments which will issue a checkbook to withdraw money from the account. Finally, depositing money is not different from depositing into a checking or savings account, and money becomes available for alternative investment instruments.