Money market accounts (MMA) act as a hybrid between check accounts and savings accounts offering higher interest rates and flexible access to your funds.
Typically, money market accounts are considered a safe and safe place for keeping your cash. Nevertheless, it is technically possible to lose money MMA; However, this is very unlikely and the risk is different from other investment vehicles.
Understanding how money market accounts work, what protection they offer, and the circumstances you may lose money can help determine whether this type of account meets your needs.
The money market account is a certain type of interest offered by banks and credit unions that connect both the inspection and the savings account.
As at the expense of checking, the money market account usually allows you to access funds via a debit card, paper checks or ATM card.
At the same time, money market accounts often provide higher interest rates than traditional savings accounts. However, some MMA has sudden minimum balance requirements as well as monthly care fees (although you can often withdraw certain requirements for these taxes).
Your interest rate may be equal despite your balance, or you may be offered steps with larger APS offered by higher residues.
Unlike investment accounts, market fluctuations cannot be lost in the main contribution to the money market account. However, there are other ways to reduce or lose value in the long run:
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Taxes: If your account takes a monthly maintenance fee you can’t give up or you get other taxes such as excessive fine, your account balance may be reduced if your fees exceed your earned interest.
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Decreased interest rates: Banks and credit unions set interest rates based on various economic factors. If you open the money market account when the rates are high but the rates are later decreasing, your financial institution may reduce your account. You won’t lose money, but you can make less interest than you’ve done before.
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Inflation: Even when money market account interest rates are high, they may not be high enough to overtake the prevailing inflation rate. Again, you will not lose money technically, but your dollars may lose their purchase power over time. That is why these and other types of savings accounts are best used in the light of short -term financial needs and goals, not long -term goals such as retirement savings.
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Your financial institution fails: If you open a money market account with a bank, it is very likely that your funds will be insured by the Federal Deposit Insurance Corporation (FDIC). Similarly, if you open an account with a credit union, your funds are insured by the National Credit Union Administration (NCUA). This means that if the financial institution fails, your money is guaranteed by federally up to $ 250,000 per body, each deputy, each property category. For the vast majority of Americans, this is a lot of coverage. But if you have more than $ 250,000 you want to put in the money market account, consider spreading funds in accounts with several banks or credit unions to make sure all your money is protected.
Read more: The 10 best money market accounts are available today
It is important not to confuse money market accounts with money market funds. The latter are investment products aimed at maintaining a stable share price (usually $ 1 per share) and to provide income through short -term debt investment.
Although they are created as conservative, these funds may lose value, especially during periods of market volatility. Unlike MMA, FDIC or NCUA, there are no money market funds.
If you want to take advantage of money market accounts while reducing your ability to lose money, consider the following tips:
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Be under FDIC/NCUA Insurance Limit: If you have a contribution of more than $ 250,000, divide the funds among several institutions to stay completely protected.
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Choose an account without charge: Look for MMA care unattended taxes or minimum balance requirements.
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Compare interest rates: Some MMA offers higher yields than others. Shopping can help overcome inflation (or at least narrow the gap).
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Read great printing: Make sure you understand the boundaries of the withdrawal and other account rules so that you do not take unnecessary fines.