Money market accounts (MMAs) are a type of savings accounts offered by banks and credit unions. They typically offer higher interest rates than traditional savings accounts and have a minimum balance requirement. They are a great way to earn interest on your money while still having access to it in case of an emergency.
By definition, a liquid asset is a financial asset that the owner can quickly convert into cash. Money market accounts are one of the most liquid assets, since they allow you to make deposits and withdrawals without penalty. Banks also offer higher interest rate money market accounts (they usually require a certain minimum balance) than traditional savings accounts.
MMAs are similar to certificates of deposit (CDs) in that they both offer higher interest rates than traditional savings accounts. However, unlike CDs, MMAs are more flexible in that you can make deposits and withdrawals without penalty. This makes them a great option for those who want to save but still have access to their money.
From traditional savings accounts to certificates of deposit, banks are boosting their APYs far beyond the paltry offerings that've defined the past decade. As rates rise and the cost of living continues to increase, many are turning to higher yielding money market accounts for their saving and investing needs.
One of the benefits of money market accounts is the ability to “ladder” your money. “Laddering, by definition, involves reinvesting [cash from] a maturing asset into a lower yielding asset at a lower price,” explains financial planner, Josh Reinitz. This strategy can help you earn more than what a savings or money market account can often provide.
Another benefit of MMAs is that they are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. This means that if your bank fails, your money is still covered, making them a safe and secure way to save money.
Money market accounts are also a great way to diversify your investments. Many banks offer MMA’s with different features and risk levels, so you can choose the one that best suits your needs. For example, some banks offer money market accounts with no minimum balance, while others require a minimum balance of $1000 or more.
Finally, money market accounts are not just for saving money. Many banks offer debit cards and check writing privileges, which can make them a great way to manage your day-to-day expenses. You can also use them to pay bills, or to make online purchases.
In conclusion, money market accounts are a great way to save and invest your money. Not only do they offer higher interest rates than traditional savings accounts, but they are also insured by the FDIC and offer a variety of features to suit your needs.