Money Market

Money Market

Many would-be investors dream of putting their money in penny stocks that turn into large bundles of cash overnight; for most, this will never be the case. For the novice investors, there are interest-based bank accounts, such as money market accounts. One may not become a millionaire overnight, but these accounts allow the largest amount of gain for the least amount of risk. They also allow you to save on fees and commissions.

Money market accounts were created in order to compete with money market funds offered by brokerages, which were long considered one of the safest investments. While the investment strategy for both is similar, the two are otherwise unrelated.

Unlike stocks or bonds, money market accounts are liquid. This means that the money put into them may be reinvested by the bank, but its value does not depend upon any particular ownership. Rather, the interest rate is based upon interest rates in money markets. Much like a checking account, the money is purely cash that can be used at any time, though there are some limitations. Money market accounts are available at most banks and credit unions.

Unlike a savings account, money market accounts allow you to write checks and easily transfer funds. However, money market accounts are not defined as accounts that must comply with Regulation Q and give interest and, therefore, they follow saving account regulations. This means that there can only be a maximum of six withdraws to third parties a month. ATM transactions may or may not be counted toward these, and only a maximum of three can come from checks. Banks are required by law to discourage consumers to defy these limitations, and will do so by imposing high fines or closing accounts. Though not legally required to, many banks will simply limit transactions.

Money market accounts earn a higher interest on average than other low-risk bank accounts. This means, however, that they require a higher minimum balance to either continue earning interest or avoid fees. Minimum balances and the consequences of not meeting them are set by individual banks.

Qualifying as a non-retirement savings account under law, money market accounts are subject to $100,000 insurance by the Federal Deposit Insurance Corporation (FDIC). This means that in the event of a bank failure, up to $100,000 of money in a money market account is insured by the government.

Many banks also offer high yield money market accounts. These accounts often give a greater reward, but carry a greater risk. Otherwise, the same rules apply as with normal money market accounts.

For investors looking to make the most money with the least risk, money market accounts are worth getting quotes on.