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What are the advantages and disadvantages of a money market account?
How is a money market account different from a regular savings account? Can you lose your money in a money...
H
ow is a money market account different from a regular savings account? Can you lose your money in a money market account? How much money do you need to open a money market account?
Like the other MMA (combat sport Mixed Martial Arts), Money Market Accounts sound a little imposing and possibly terrifying for the uninitiated but at their core, are actually just higher-yield savings accounts.
You can open an MMA at any bank (online or brick-and-mortar) that offers them, and they operate in a very similar way to a standard savings account, with just a few differences:
Because the interest rates for you as account owner are higher, so too is the minimum required balance. A savings account can typically be opened with a $0 balance, but most MMAs will require at least a $1K balance upon opening. You’ll need to maintain that minimum consistently to avoid any fees and there are also limits on the number of withdrawals you can make annually.
Your bank will typically invest your MMA savings in low-risk vehicles such as government securities, certificates of deposit and commercial paper. These types of investments offer generally higher rates of return than those for standard savings accounts, meaning more interest goes in your pocket.
MMAs are FDIC-insured which means your account won’t dip in value. If you’re looking to open a money market account, do a bit of research with banking institutions available to you and make sure you don’t confuse your MMAs with your MMFs! A Money Market Fund is a different beast altogether and these savings schemes can rise and dip along with the market and interest rates. They’re also not insured by the FDIC so make sure you know what you’re asking for when you head into the bank!