Today you told your friend how happy you are with you savings account balance. Your friend asked what rate of interest your bank is paying on the account. When you told her, she suggested that you would do much better with one of several money market accounts. Take this quiz to help you decide where to put your money.
A money market account is similar to a regular savings account and is also offered to consumers by banks and credit unions. Money market accounts have more restrictions than a regular savings account.
A money market account typically pays a higher rate of interest than does a regular savings account. The down side is that money market accounts often require a high minimum.
Most banks require that you maintain a minimum balance in the range of $1,000 to $2,000 and there is generally a penalty for slipping below the required minimum.
Unlike a typical savings account, money market accounts allow a limited number of checks per month. The number of checks that you may write in a month is usually limited to three.
All monies in a money market account are protected by insurance in case your bank should fail. There is no risk of losing the money that you invested in a money market account.
The Federal Deposit Insurance Corporation was created as an independent federal agency in 1933, because so many banks failed during the Great Depression. The purpose of deposit insurance was to allay fears that people had about trusting banks with their money.
Banks make most of their money by lending money that people deposit. They lend money at higher rates of interest than the interest that they pay for having money deposited in their bank.
Money market accounts usually earn compound interest. The beauty of compound interest is that the bank is paying you interest on your cash in addition to interest on the money that they paid to you in interest.
Most banks charge $5 to $10 for every withdrawal that you make above the maximum allowed limit. It is important to make sure that you stay within the allowed number of withdrawals to avoid hefty fees.
Try to treat your money management account like a savings account so you can maximize your interest earnings. Make the largest regular deposits to the account that you can manage on your budget and watch your money grow.