Money Market Rates

# Explain Money Market Accounts

Money market account is a generic term to describe a market where banks and credit unions borrow, lend and trade certificates of deposit, money, and other financial instruments. Also known as MMA, it is similar to a savings account but has a far better rate of interest, a higher requirement of minimum deposit amount ($1000-$2000), and limits the number of withdrawals per month (3-6). These features make it less desirable for people to take out money.

Money market accounts from the banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC), for up to $100,000. FDIC is a United States government corporation that guarantees insurance on deposits held by commercial banks. This came into existence because of the failure of several banks to fulfill their obligations. Since the inception, there has not been a single instance of a person having lost money in either a bank or credit union insured by the FDIC. The National Credit Union Administration (NCUA), which is a federal agency, insures the money with credit unions. The FDIC secured money market account is a secure way of savings for an investor.
# Multiplying Money!

Money multiplies with a money market savings account as it earns you a high rate of interest. It would help to understand why banks pay this high interest and what do the banks gain from it?

You open a money market account in a bank and deposit money.
The bank pays you interest on the money you have deposited in their bank.
The bank lends your money in the form of loans to people who need them and charges them interest on the money lent. Only thing is, the interest the bank charges those people is higher than the interest it pays you.

The difference in the interest rate it charges them and the interest it pays you is the income earned by the bank and that�s how banks survive.
# Interest Calculation

Interest on the money deposited is calculated as compound interest. Compound interest is where you earn interest even on the amount paid to you as interest by the bank. It is calculated on a daily basis but paid monthly. The money market rates vary from bank to bank, with some paying even higher rates. The interest rates are not fixed and they depend on the amount of money you have in the bank. The more money you deposit, the higher the money market rate. Investigate the market to find banks that provide the best money market rates along with other features.
# Withdrawal Limits

Although you are allowed to withdraw money from your money market account just as you would with a regular savings account, but there is a restriction on the number of withdrawals per month. If the number of withdrawals is greater than the bank�s limit, then you would be charged a fee of around $5 to $10. There is also a certain amount of money that needs to be maintained in the bank, failing which you will be charged a fee of around $5.

Each bank has its own set of requirements in place, and this is precisely the reason you should look at various banks and compare the requirements, before opening an account.

What are the various fees that need to be paid?
What are the service charges?
What is the amount of interest paid on your money?
What is the minimum balance requirement?

Make a list of all the questions and get answers to those.
# Operation of a Money Market Account

On opening a money market account, you will be given a small register, where you are expected to maintain your transaction history. Initially, you may write the original amount deposited and then keep entering all the subsequent deposits (credits) and withdrawals (debits), to enable you to manage and analyze your account at any point of time.

You will receive a statement of account by e-mail or to your PO Box, per your preference. This statement will provide a record of all debit and credit transactions and the amount of money left in your account (balance).

To safeguard yourself, it is always a good practice to countercheck the withdrawals and deposits in the bank statement with the register of activities that you maintain. This comparison helps in reconciling your accounts.

Having explained all that, what is remaining is for you to open a money market account and make regular deposits and watch your money multiply faster because of the higher money market rates of interest.