What Is A Money Market Account?

Invest in money market accounts and let your money start working for you.

What is a "core account"? It is an account that is considered standard and is a product that major financial institutions offer their customers. With this in mind, if someone were to ask you what a "core account" consisted of, what would be the correct answer? If you were thinking about a checking and a savings account, you would be partially correct, as checking and savings accounts are accounts that are considered standard and are products available at any financial institution. But they are only part of what is considered "core accounts", the other is the money market account.

The money market account, like the checking and savings account, is another "stand alone" account. In other words, whereas the money market account has many of the same features desirable in a checking account and a savings account, it does not really belong to either classification. Also, by individualizing the account, it avoids the stigmas associated with having a checking or savings account. Such as, checking accounts come with the stigma of having little to no interest, hence the need or desire to have a savings account. And a savings account comes with the stigma of having low interest as compared to most Certificates of Deposit and the inability to write checks. The money market account, takes this into consideration, in that it allows you to earn a higher interest rate and at the same time allows you to write 3 checks per month. So, not only are you earning a higher interest rate then any checking or savings account could possibly ever earn, but you're also able to write 3 checks per month as well, something a savings account could never do. Also, money market accounts, not to be confused with mutual funds, are backed by the FDA just like the checking or savings accounts.

There are several different types of money market accounts: one is the money market checking and the other is the money market savings. The money market checking account is the most widely used, because it offers customers the ability to earn higher interest and to write three checks per month. Whereas the money market savings, although labeled "savings", tends to earn a lower rate of interest than a money market checking account, at this time. It is for this reason, that most financial institutions will only list the Money market checking account as one of their core products. And why, any further mention of Money market accounts will deal strictly with the Money market checking account only.

Money market accounts have an opening balance of $2500.00*, and a minimum balance of $500.00*. They are also based on balances kept within the account and are tiered. A depiction of the standard tiered rates are as follows (for a more accurate rate contact your financial institution):

*Balances are based on last inquiry made 7/00

$ 0 to $2,500 2.50%

$ 2,500 to $10,000 2.70%

$ 10,000 to $ 50,000 2.90%

$ 50,000 to $ 100,000 3.00%

$100,000 and above 3.30%

Money market accounts, also depending on the financial institution, may have what is known as a "sweep" feature. A "sweep" account offers customers to accrue not only the base interest on the account, but also an additional "percentage" that is gained by "sweeping" a set amount of money into another account, typically an investment account, for the period of one day, before being re-deposited back into the original money market account. The amount that is being "sweeped" is decided by the owner of the account. So, the owner has full control over his/her own "investment". This feature is very attractive for those looking for a high return on their savings, as it offers a higher "dividend" or interest than most certificates of deposit offer. It is also a feature that was originally only offered to high income businesses. By high income, we're talking about funds left in a checking account that is over $100,000, with additional accounts on the side.

So, why hasn't the money market account replaced the savings account, because of three very important reasons: 1. money market accounts require a higher opening balance than most savings accounts, 2. most people enter a financial institution with a set goal of learning about a checking and/or savings account, and 3. because people who have heard of the term money market often mistake it for mutual funds. And as such, even in this day and age, are still wary of investing in the stock market.

To learn more about money market accounts or banking products in general, contact your financial institution to see what they can do for you.

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