FAQs: What is a money market? What are the benefits of a money market?
Let’s break down and answer these two questions in an easy-to-understand way!
What is a money market?
A money market account is a type of personal savings account offered by a bank that typically pays a higher interest rate than traditional savings accounts. It is a type of deposit account that allows you to earn interest on your balance while also having easy access to your funds.
What are the benefits of a money market?
When you invest in a money market account, you’ll deposit a set amount of money into the account, which will then earn interest.
- Higher interest: Money market accounts typically offer higher interest rates than traditional savings accounts, which means you can earn more money on your deposits over time.
- Low risk: Money market accounts are FDIC-insured, which means that your deposits are backed by the full faith and credit of the US government, up to a certain limit. This makes them a relatively safe investment option for those who are looking to earn a return on their savings without taking on a lot of risk.
- Liquidity: Money market accounts are designed to provide easy access to your funds. One key feature of money market accounts is that they often come with check-writing privileges or a debit card, which allows you to easily access your funds when you need them. However, generally, there can be limits with this and on the number of transactions you can make each month, so it’s important to understand the terms of your account.
- Diversification: Money market accounts can be a good way to diversify your investment portfolio. They offer a low-risk, low-return option that can balance out higher-risk, higher-return investments.
How is a money market different from a savings account?
Money market accounts offer a higher interest rate than traditional savings accounts, but they also require a higher minimum balance to open and maintain the account.
How is a money market different than a CD (Certificate of Deposit?)
A CD is a type of deposit where you agree to leave your money in the account for a certain amount of time. If you withdraw your money before the end of the term, you will typically pay a penalty fee. (Learn more about what a CD is here.) Money market accounts generally offer lower interest rates than CDs, but they offer more flexibility in terms of accessing your funds. Money markets are generally a better choice if you do not want to tie your money up for a length of time.
How is a money market different from a checking account?
A checking account is designed for everyday transactions, while a money market is designed as a short-term investment.
Overall, if you can afford their minimum balances, a money market account can be a good option for people who want to earn a higher interest rate on their savings while still having easy access to their money. Think a money market is right for you? Contact us or apply for a money market online!