Do you have money that you don't want to risk in the stock market, but also needs protection from inflation eating away at its value? A money market account (MMA) could be a good bet. Maybe you've saved up an emergency fund and want to earn some sort of return on your money, but you don't want to lose access to the funds as you would if you put it in a certificate of deposit. An account with a competitive money market rate is a remedy for your situation. Money market rates and account fees vary greatly from bank to bank. Some banks allow you to write checks and use an ATM card with the account free of charge while others charge hefty fees for the same privileges. Aside from fees you also need to keep an eye on short term interest rates. Money market rates may be impacted by market swings. As the Federal Reserve makes changes with monetary and fiscal policy the rate on your money market account can change drastically. Looking for a safe haven - Does a money market account meet your need? MMAs share traits with both Certificates of Deposit, checking accounts, and saving accounts. Here's how: Certificate of deposit: with a CD you're getting a better interest rate than you would with most checking and saving accounts, but you give up liquidity because you can't access the funds without paying a penalty; MMAs generate better interest than most checking and saving accounts (and very short term CDs) Checking accounts: with a checking account you get to write checks and use an ATM or debit card to withdraw funds without penalty; most MMAs allow you check writing privileges Saving accounts: with a savings account you earn interest in exchange for parking your cash with the bank and you cannot have more than 6 transactions per month; with an MMA you're getting higher interest but also have a 6 transaction limit As you can see you're getting a mix of the benefits: a higher interest rate, liquidity when you need it, and the ability to withdraw funds up to 6 times per month if you need to. On top of all this, money market rates accounts invested in FDIC member institutions have deposit insurance coverage up to $250,000. What to watch for - Avoid these issues As with any financial account you need to be aware of what fees you can run into down the road. With MMAs you need to make sure you stay under the 6 withdrawal transaction limit per month. Federal law dictates that banks limit the number of times you access your funds, and you will be charged an excessive withdrawal fee if you go over the limit. One of two of those fees per year can wipe out any interest you earn, no matter how great your money market rate is. Monthly maintenance fees may apply to some accounts as well. As with the transaction limit fee just paying a fee to have an account will usually wipe out any interest you would earn throughout the year. Many banks that have maintenance fees will waive them if you maintain a minimum balance.
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