Understanding the money market account

Saving money is the key for people to gain stability in today’s economy. The fact that today, there is no assurance that people can retain their jobs; hence, there is a need to invest their earnings so they can prepare for the future. Relying on income alone may not suffice for the needs of the future; thus, people must start placing their money on places where it can grow.

People may now opt to engage in short-term borrowing and lending of money. This system is described as the money market. In contrast we have capital market for capital market deals that involves long-term funding.

There are two main actors completing the money market system – the financial institution (like banks) and the dealers. These dealers are the consumers who, through their deposits, provide money financial institutions which these institutions can lend to other people.

Among the common investment tools used in the money market includes money market mutual funds, treasury bills and certificate of deposit. Certificate of deposits are well known for the high interest rate it is offering to consumers. It is also popular with its feature of locking the money for a specific period of time which the depositor has agreed with. The advantage of this is that consumers are forced to save and keep their money in the bank. When it comes to CDs, the longer they are unable to access their money, the higher interest they earn. While there CDs have a maturity period, consumers can also request access to their accounts in case of emergencies. Needless to say, this typically involves penalties.

There is also a type of deposit called money market account. Money market account is also known for high its amount of return. Unlike the CD, the interest rate can vary, depending on market rates. The good news is that it does not have a lock-in period so the depositor can withdraw their money anytime. One disadvantage of a money market account is that it requires a high minimum balance in return for the high interest. Moreover, the depositor can only withdraw for a specific number of times, and there’s also a limit to the amount that can be taken out. Another difference of money market account from other types of deposit account is that some of the withdrawals can be paid by check. Since the number of times the depositor can take money from his/her fund is limited going beyond the maximum allowed would cause penalties on the account. The amount of penalties is designed to be high to discourage consumers from taking out money, hence allowing the bank to utilize the deposits.