Money Market Checking Accounts
Choosing money market checking accounts over basic checking may be a smart move for a person looking to earn more interest. In general, a money market account is savings based and offers competitive interest rates. Funds kept in an account of this type accrue interest. The basic premise of this account is that a person is willing to allow the bank, credit union or other financial institution to hang on to their cash for an extended period (3 months to 2 years) in exchange for earning interest at a higher rate. The financial institution can then take these funds and lend them to other people who pay market interest rates to the financial institution. The financial institution earns the difference between what the borrower pays in interest to them and the interest the financial institution pays to the depositor. Many people who choose to invest their cash this way feel that it is well worth the wait. Using the funds to lend to other people may also require that a person wait up to 10 days before assets can be withdrawn, or that the account holder limit the number of transactions they make to no more than a six per month.
Money market accounts are also known as MMDA's or money market demand accounts. Actually any savings or checking account is considered a demand account. What money market checking accounts do for the depositor is that they allow access to liquid cash when absolutely necessary. Yet, each account can continue to generate interest as long as the minimum balance is maintained. Getting an account of this sort is perfect for the person who receives a windfall, settlement, or even a healthy tax return. The extra cash received could be put into such an account and the interest could be used to pay down current indebtedness, pay for an unusually high bill, or to save for rainy day. There may be a minimal fee or no fee at all. Money market checking accounts are just as accessible as a regular checking account through the use of check writing, automated teller machines, electronic debits and automatic monthly transfers. The rate of interest is less than that accrued for a money market savings account, yet it is usually better than for the typical savings account. For example, if a person were to have two savings and two checking accounts at the same financial institution. And one of each of this type of account is a regular account and the other type is an MMDA. For the savings account, the regular savings may have a interest rate of 1.75%, while the money market savings might be 3.85%. By the same token a regular checking account may have a interest rate of .50%, while a money market checking account may be at 1.85%. The highest yields will be for the longest periods of time.
Financial institutions often use money market checking accounts as a tool to bring in more customers. However, these instruments pose a greater risk to the bank than its counterpart; the MMDA savings account. Therefore, financial institutions require a high minimum balance and a limit on the number of transactions a person can make in a given month in order to hedge that risk. There are also some penalties accessed for dipping below the minimum balance and other penalties are assesses for making too many withdrawals from this type of account. Conversely, the perks for keeping the balance high may include free personal or business checks, waivers on maintenance fees, free cashier's checks, overdraft protection, and free money orders. In shorter term money market checking accounts, say three months, a person can earn some interest. For a higher yield, though, a person has to be willing to give up a tad bit of liquidity for six months or more. It is possible to link an MMDA to an existing account. For the depositor, doing this may make it more easy to transfer funds from account to account and otherwise provide overdraft protection. Another benefit to linking one account to another is for the ease of making electronic deposits.
The good news for people who choose to shore up their finances using money market checking accounts is that these accounts are very safe. Since the beginning of the Federal Deposit Insurance Corporation (FDIC) each depositor's funds has been insured up to an amount of $100,000. There has been one increase in that amount to $250,000 per depositor. The depositor's funds are backed by the full faith and credit of the United States government. Since the FDIC was first established, there has been no loss to a depositor of a single penny of FDIC insured funds. Deposit accounts, including checking and savings accounts, MMDAs and certificates of deposit (CDs) are covered by FDIC insurance. Stocks, bonds, annuities or municipal securities, and mutual fund shares, however, are much more risky. They are not considered deposit accounts and therefore do not carry the protection of the FDIC. "And they have gathered together the money that was found in the house of the LORD, and have delivered it into the hand of the overseers, and to the hand of the workmen." (2 Chronicles 34:17).
Utilizing money market checking accounts instead of basic checking may be a good financial decision when a person is looking at liquidity as a main investment concern. This particular type of financial instrument is fairly liquid. In times of economic uncertainty, it is critical that people maintain a decent level of liquidity. A liquid asset which includes short-term investment instruments are seen as cash in the financial world. It is often agreed that these accounts are a better hedge against inflation than other types of investments. This type of investment is very safe and it's a win-win for all parties. Frankly, the competitive interest rates of MMDAs are said to be well worth the inconvenience. Money market checking accounts are a reasonable investment option for a person wins the lottery, receives an inheritance or settles an insurance claim.
Money Market Savings AccountA money market savings account offers a higher interest rate than traditional savings accounts; however it is still considered one of the lowest earning investment vehicles available. In most cases money market checking accounts are used to store funds while waiting for the right investment opportunity or to save for the required amount by some investments. In general, storing earnings rather than a sock at home offers more security as well as offers earning power. Shopping around for the best interest rate as well as other useful perks such as unlimited withdrawals, no minimum balance, and no monthly fees. These terms create the flexibility for a person to use the funds when needed, but earn interest when desired.
Though these options are issued through banks or credit unions, which are insured by the FDIC, other investment companies may not offer this insurance. Insurance through the FDIC promises that funds will not be lost if a crash of the stock market happens to the severity that would affect the availability of funds. This insurance is good up to $100,000, however other insurance is available through most institutions, which would cover any remaining funds. Ensuring security of funds is much more important than the interest rate earned and other details of desired money market savings account. Investing businesses additionally offer protection for low-level investments such as money market checking accounts. Though funds may only stay in this account for a short period of time, security is crucial.
Some differences between traditional and money market checking accounts includes interest rates, flexibility of spending, and minimum balance requirements. If a person cannot be sure that the minimum balance will be met all the time, then sticking with traditional savings may be the better choice to start. Funds can always be transferred to different types of accounts or institutions. In fact, most people use money market checking accounts as a temporary place to put funds before investing in a more substantial investment.
When shopping around for the best rates be sure to mention the rates offered by competitors in order to get the best possible offer from everyone. If a bank can get away with offering less they will, but gaining new business is more profitable. Creating competition is important in obtaining the best rate, however it is just as important for banks to try to convince a consumer their offer is the best. Understanding all the terms before signing any papers is crucial even in short term circumstances. Finance charges, overdraft fees, and other costs may surface after agreeing to open a money market savings account. Although it is the consumer's right to close the account at any time, money and time may be sacrificed in order to do so.
Ideally these options will have no monthly fees, no minimum balance requirements, free checks, Internet banking and a low initial deposit requirement. Finding this type of deal may be difficult and may have some strings attached. When asking a bank what options they offer, telling them what services are desired not only saves time, but also gives the bank a chance to meet that challenge. Most banks will try to get away with charging more and giving less in order to make more earnings for themselves. Once a bank has given its final offer it is time to take that offer to another bank to try to get a better deal unless all terms have been met. Though banks can compete for interest rates and specific charges, sometimes specific desires of the consumer cannot be met and the best choice available is chosen. Likewise, a person may not be satisfied with any options therefore settle with a traditional vehicle for savings.
A money market savings account usually earns interest compounded daily which shows up on the monthly statement. Once a money market savings account reaches a certain amount then the interest rate increases. Understanding how much the rate will increase and the amount of funds required for that increase is important. Some banks give great beginning interest rates, but lack in terms of increasing rates. The final decision concerning which account is best depends on the amount of money invested and projected funds contributed in the future. "Multitudes, multitudes in the valley of decision: for the day of the LORD [is] near in the valley of decision." (Joel 3:14) Prioritizing funds based on their future use better prepares a person for making the right choices in investment. Other considerations before making these investments include what will happen when the shareholder dies and who the beneficiaries are.
Other options for investment include CD, stocks, bonds, and 401(k) plans. In most cases people use money market savings accounts as a temporary 'holding tank' while waiting for a good time to invest in stocks or bonds. Depending on the immediate need for the funds, a CD may offer better interest rate, however the shorter the term of the CD the lower the interest rate. CD are available for multiple years where they earn very high rates of interest, however the penalty for early withdrawal may outweigh the interest earned depending on the amount invested and the time available to earn interest. Stocks and bonds historically hold the highest earning power over a long period of time, however investing at the right time and with the right companies determines the earning potential. This way of saving offers safety for the funds while a person determines the right place to invest.