How to Understand Money Markets

If you wish to have more money in your bank account, you cannot rely on traditional savings only. Another way to lay off more money is by placing your cash in money market accounts. It can earn about twice the interest of a traditional savings account, interesting right? If you want to gain market neutral from saving this is one the great idea which worth to try. Below are several steps that can help you understand the money market.

Step 1

Understand that a money market account (MMA) and money market fund is a different thing. However, a money market fund is considered as quite safe since it is a low-risk investment type, while a money market account is better known as a more risky one. But, this doesn’t mean that the money market fund is completely safe since it will rise and fall along with market conditions.

Step 2

Invest in a certificate of deposit (CD) or Treasury bill. These are both low-risk, short-term investments that offer a higher interest rate than a regular passbook savings account. Some money market accounts require a deposit of as little as $100 to open.

Step 3

It is better to choose a money market account that is insured by the Federal Deposit Insurance Corporation (FDIC). If you have the account with a bank, the principal will be insured for up to $250,000. Moreover, the FDIC does not insure money market accounts offered from large corporations. Therefore, you run the risk of losing your money if the company files bankruptcy.

Step 4

Before investing your money, you better learn about the restrictions of a money market account. Unlike a traditional savings account, there is a limit on how many withdrawals you can make from the account within a specified period of time which causes any penalty if your account balance falls below the minimum required.

Step 5

Pay intention on inflation and fees, both of them can reduce the amount of interest that you will receive. Inflation decreases the value of your money which causes the decrement of the purchasing power of your savings while fees can outweigh the slightly higher interest yield. In fact, if you have a low balance, closing an account early, returned deposits and requesting a paper for a statement, some banks will charge you some fees.


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