Money market accounts are hot right now because of the pretty good return on your investment. A money market account is basically an investment in cash. When interest rates go up, so does the value of cash. You can actually make money on how well the dollar is doing. With stocks and mutual funds in a bit of a slump (but don’t rush out to dump them all), cash is looking more promising. Especially if you are looking for a relatively safe place to put your money. And a money market account is a great way to create a safety net for yourself.
Money market bank account
One of the types of money market account you can invest in is a bank account. Your financial institution sets interest rates, and these change in accordance with bank policy. Such accounts are only nominally based on the actual cash interst rate. Most banks and credit unions offer money market accounts, and you can open one fairly easily as long as you have the minimum deposit. It is also possible to set up an automatic deposit system into a money market account. One of the great things about a money market bank account is the fact that it is FDIC insured. This means that the federal government insures your account for up to $100,000 should the bank fail. Similar protection is offered when you open accouts at credit unions. There are, however, drawbacks to the money market account set up at a bank. You are only allowed to write three checks a month, and many banks and credit unions limit your withdrawals from money market accounts. You may be subjected to a high intitial deposit, or charged fees if you do not maintain a minimum balance, usually betwenn $1,000 and $5,000.
Money market mutal fund
The other money market option is a money market mutual fund. This is an interesting option that allows you to invest in a mutual fund based on cash assets. Interest rates change daily and are influenced almost directly by the money market. Because a money market mutual fund is not usually purchased through a bank (and even if it is), there is no FDIC protection. If you lose out, you lose your money. However, no investor has ever lost money in a money market mutual fund. The rates may drop quite low, but the likelihood (though present) of actually losing in a money market fund is very low. And, as long as you write checks taht are over a certain amount, you can usually write unlimited checks each month.
A money market account can be a great way to have your money work for you on a more regular basis. It can also be a good safety net of relatively liquid funds, as well as a solid contributor to your retirement income.