Money Market Account Rates: Better than Savings Rates!

2007-03-08 10:33:40

( Financial )



What are money market accounts?

A money market account is a type of account that offers a higher interest rate than just a regular savings account. Money market account rates are often a couple of percentage rates above savings account rates. However, certain restrictions are imposed on such accounts, which is why money market account rates have to be high enough to attract investors.

The Advantages of Money Market Accounts

Money market accounts offer a number of advantages to investors. First (and perhaps most importantly), it offers a relatively good investment yield, especially when contrasted to regular savings and checking accounts. On the average, money market account rates are a full 2-3 percentage points higher than that offered by standard accounts. In other words, a money market account can be a handy tool for growing your money and beating inflation.

Second, money market accounts are fairly liquid. The liquidity of your money market account will depend on the terms under which your deposit was made, but for the most part, banks will allow you to use your money market account to pay your bills or make withdrawals. They may even allow you to write checks against your money market account. Note, however, that most money market accounts require a maintaining balance. Once you go past this balance, you will be subject to relatively high fees.

Third, money market accounts are very secure. The money derived from your deposit is usually invested in short-term government securities such as 30-day T-bills. These securities are considered relatively risk-free because of the government’s taxing power. In other words, should the time come that the government cannot pay its obligations, it can raise taxes so it can. In theory, at least, it is almost impossible to lose your principal when you invest in a money market account.


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