A money market account is basically a savings account that earns a higher interest rate, but that comes with certain restrictions that make the account profitable for the holder and the bank that is offering it as well. It comes with regulations so that you are needed to have a higher minimum balance, cannot deposit or withdraw as often as you may like and you incur high penalties if you do.
To understand high interest money market accounts, we need to first understand money market accounts – at least the basics.
So what makes a high interest money market account?
What you need to know as a depositor is how to get a higher interest rate on your deposit. The interest rate is determined first and foremost by where you open your account. Banks and credit unions are known to pay lower rates on their money market accounts. An online bank would be a good place to find a high interest rate for your money market account. An online bank is different from a regular bank. It’s not a brick and mortar bank that occupies a space, but a network of participants who offer banking services. Because of these, their overheads tend to be lower and so they can afford to pass on higher interest to their depositors.Secondly, your bank of choice should be dealing in the best yielding securities in the money market, but should not at the same time be exposed to excess risk. This way, they are able to make more money from funds and this is passed on to depositors who hold high interest money market accounts.
How do you know if a high interest money market account is right for you? You need to know both the benefits and disadvantages of holding such an account. We have already discussed the benefits. The main disadvantage is the restrictions imposed. You cannot access your funds as you wish. This means that the funds that you deposit must be extra funds – you must be liquid enough. Your monthly expenses should already be well taken care of so that this is truly extra income. That is the only way you will enjoy the benefit of holding a high interest money market account. You also need to keep making deposits if you want to grow your money faster.
These may look like restrictions, but in reality, they help you save much better and much more efficiently. The fact that you cannot access your funds at any time you wish means that eventually when you do, they will be that much more. If you especially lack the will power to save, like many people, this is a great option to take. It makes it hard for you to spend your money.
If you have extra funds each month, or each week, high interest money market accounts are something to consider. They will ensure that your hard earned money does a good job of increasing without any major effort on your part.