Knowing the different banking instruments available can be important for those who want to better manage their personal finances.
Not unlike savings accounts, money market accounts (money market accounts) are attractive products that can give you a little more versatility. That is why we are interested in revealing its secrets to you.
Origin of accounts money market
In the early 1980s, the federal government imposed a limit on the amount of interest that credit unions and banks could offer for their savings accounts.
This measure meant that the institutions could not compete with the dividends offered by the money market mutual funds.
Pressured by the banking sector, in 1982 the congress found it necessary to enact the Garn-St. Germain for depository institutions.
This statute allowed financial institutions to promote and offer accounts money market, who paid a market equivalent interest much more attractive to potential customers.
What are money market accounts
They are basically savings instruments offered by banks, savings entities, credit unions and neobanks. They are also known as money market deposit accounts (MMDA), but they should not be confused with money market mutual funds.
They offer a higher interest and other services they do not have the deposit instruments or the normal savings accounts.
Depending on the bank, you can find money market accounts that include a debit card and check writing options.
In addition to this, they only allow you to make 6 withdrawals or transfers per month, they can have a minimum balance to give you the highest rate and have certain restrictions that make them less versatile than checking accounts.
They are often compared to high-yield savings accounts (high-yield) because the only thing different is the name.
They have become very popular deposit products and are recommended by personal finance specialists to build up funds you may need in the short term or to start building capital.
Characteristics of MMA accounts
The fundamental aspects of money market accounts can be summarized as follows:
- They can include low maintenance fees.
- Offer relatively high interest rates that exceed 2%.
- They usually require a minimum balance ranging from $ 2,500 to more than $ 10,000.
- It is possible to open a money market account from as little as $ 1.
- Funds up to $ 250,000 ($ 500,000 for joint accounts) are FDIC insured and you can have the ones you want in the same institution.
Advantages and disadvantages of money market accounts
Although we have already outlined some of the most relevant benefits of money market accounts, it is good to delve into the good and bad of these banking products. Of its advantages, we can highlight:
- MMA are safe instruments because they are protected by the FDIC or the NCUSIF (credit unions).
- You get best interests than with other savings accounts because the financial institution invests your money in low-risk investments.
- You may dispose of your funds whenever you want.
- In some cases, they give you the ability to write checks or include a Debit, giving you more flexibility.
Among the least favorable of money market accounts, we must mention:
- Although you have access to your money, there is a limit of 3-6 monthly operations to pay by check or debit card.
- Be on the lookout for introductory interest rates. Many banks advertise very good rates that can last for a few months or less.
- These financial products are designed to give you the freedom to mobilize your money and save a little more in the short term. If you want to invest in the future, a CD ladder scheme might be more profitable.
Comparison between mutual funds and money market accounts
Unlike MMAs, money market mutual funds are products offered by brokerage firms and trading companies. mutual funds.
For this reason, are not insured by the FDIC or NCUA. However, they are considered low risk because the money is invested in CDs and very short-term private and public debt.
When it comes to access to money, money market accounts and MMMFs work the same way. The difference is that the former have a limit of operations and the latter do not.
On the other hand, mutual funds tend to pay more dividends, but may have restrictions on the maximum amount for a check or the redemption of shares.
Money market accounts can improve your personal finances. At the Blog Hispano de Negocios comparator we support capital diversification and we are attentive to market offers to show you the most interesting products.