What is financial market accounting?

Definition of Money Market Account

How Money Market Accounts Work

Advantages and Disadvantages of Money Market Accounts

Do You Need a Money Market Account?

Alternatives to Money Market Accounts

Definition of Money Market Account

A money market account is a high-yield savings account that also shares some features with checking accounts. If you have enough cash to open one, it can be a useful savings tool that allows limited access to your funds while earning a higher interest rate than a traditional savings account.

How Money Market Accounts Work

Many banks and credit unions offer money market account options, either in-person or online. Currently, many banks offer accounts with no minimum balance requirements. If you provide the bank with checks for your money market account, they will provide you these checks along with your other account documents, which specify terms such as the maximum number of transactions per month.

The terms of your account will also outline the annual percentage yield (APY), which is the interest rate that your account will earn based on compounding over the year. For example, if you deposit $10,000 into a money market account with an APY of 0.29% on January 1 and do not add any additional funds, you will have $10,029 by the end of the year.

As long as you are dealing with an institution insured by the FDIC (or a federally insured credit union), your money market account, along with the balances of other bank accounts at the same institution, will be insured up to a total limit of $250,000 for individual accounts or $500,000 for joint accounts ($250,000 per joint account holder).

Advantages and Disadvantages of Money Market Accounts

Advantages:

• Insured up to FDIC or NCUSIF limits
• Earns higher interest than some traditional savings accounts
• Funds are accessible

Disadvantages:

• Some banks may limit the maximum number of transactions per month
• Promotional interest rates may be higher than the actual yield
• May not be insured at some institutions

Do You Need a Money Market Account?

Money market accounts are a great place to park funds that you may need in the near future. They allow you to earn a small return while keeping your money safe and accessible. They are particularly useful for larger, non-recurring expenses such as:

• Emergency funds
• Budgeting for quarterly tax payments
• Tuition fees

A money market account may not be the best place to keep money for regular expenses due to restrictions on the number of payments you can make using checks. However, you can keep money in a money market account for some of your largest monthly expenses, such as a mortgage, to earn more interest.

Alternatives to Money Market Accounts

If you do not need immediate access to your funds, you may consider high-yield certificates of deposit. You can also utilize a series of CDs, known as a “CD ladder,” to earn good returns while keeping some funds liquid and reducing penalties for early withdrawal. If you are investing for the long term, speak with a financial advisor about the right mix of investments that can help you meet your goals.

Source: https://www.thebalancemoney.com:443/money-market-accounts-earnings-and-access-315773

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