A Sure Bet
Money Market Accounts are Simple and Safe
January 19, 2012
Because there are so many ways to save and invest money to earn more on your dollar, money market accounts have all but been forgotten. Sure, a money market account may not be the highest paying investment out there, but for what it lacks in quick return, it makes up for in convenience and safety. And let’s face it, making sure your money is safe has been top on everybody’s minds for a while now.
With the economic downtown we’ve seen tragic losses in the financial industry, impacting both the institution and the consumer. But with a money market, your investment is covered the same as with a certificate of deposit or regular savings account. The difference? You typically earn a higher interested yield with a money market compared to a savings or checking account, and there is some flexibility in getting access to your funds, unlike a certificate of deposit.
Plus, the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) means that even if the bank or credit union goes out of business, your money will still be covered. For a personal account, that coverage currently guarantees at least $250,000 per account, and possibly even more depending on how you choose to structure your account and how many beneficiaries are designated on the account. For business accounts, the coverage does not exceed $250,000 on a single account, but as we have all learned, keeping your money in one place isn’t always the best strategy anyway.
A Safety Net
Many people are nervous about their financial safety. One of the positive takeaways from the economic downturn is that more and more Americans are starting to save money. Even though interest rates are currently lower than they have been in the recent past, money markets are still an effective and safe way to get just a little bit more on your dollar.
Like a traditional savings account, a money market account allows you to make deposits, take withdrawals and transfer money. It is important to note that most accounts limit the number of transactions that account holders can make per month, but they still provide more flexibility and are more reliable than stocks or other investments. Money market accounts differ from CDs in that there are no time constraints to access your funds.
If you are looking at opening a money market account, please consider the following:
• Many institutions have tiered options for accounts. Look carefully at all the different offerings and understand what best fits your needs. Usually the higher the interest rate, the more money it requires for a balance.
• Be cautious of introductory rates. Look for the best regular interest rate. An introductory interest rate is usually not the same as the regular rate, which kicks in after a couple of months. Keep in mind that you’ll be at the regular rate for a much longer time.
• Make sure your financial institution is federally insured. Regardless of the interest rate offered, if a bank or credit union’s accounts are not insured then your money is not safe.
• Consider opening up a money market account where you have a checking account. This way you can easily transfer money from your money market account into your checking account for payroll or other expenses. Ask your financial institution about setting up automatic transfers to help with cash flow for peak times.
• Determine the amount needed for an opening deposit. Often the opening deposit is going to be a lot more than a traditional savings account. Some credit unions or banks will require an opening balance of $1,000 or $2,500. With a savings account, the opening is much lower—usually around $50 to $100 dollars.
• Know the minimum balance requirement. If you go below your minimum balance, your account may stop paying interest and you may be subject to a fee. It’s always a good idea to check with your financial institution to see the requirements and understand how to get the best return.
• Clearly know how many checks or transactions you can write per month on the account. This will help you manage cash flow and understand what options you have to leverage the funds.
Every business owner wants to safely invest money and get the maximum return on investments. One of the safest investments a business can leverage is a money market account. The benefits of a money market account are many, beginning with the very attractive idea that you can earn a higher yield than on a traditional savings or checking account, you can manage the account online, and the money can be easily accessed when needed.
Overall, a money market account can be a great tool for your business to leverage when having extra cash in a savings account. Often, business owners forget that money market accounts can be a simple way to earn additional interest and still have access to the funds if needed.
Jennifer Stoddard, the Associate Vice President at Family First Federal Credit Union. She answers questions about finances and budgeting on the Family First website (www.familyfirstcu.com
) in a section called “Ask Jenn.” Family First has branches in American Fork, Pleasant Grove, Orem, Springville, Payson, and Lindon. Jenn can be reached at firstname.lastname@example.org
or at 801-225-6080.