Money Market Accounts: A Smarter Way to Save

f13When you think of saving, you probably think of a savings account. While this is a reliable option for a secure place to hold your money, it is not always the smartest. Gone are the days when they offered 10% interest rates. The current average return is 1.4% per year. What that means is you can expect a few dollars in the end, and that is assuming there is not an annual fee associated with it. If you want to put your money to work, then a money market account is the choice for you. With higher returns, they can present both risks and rewards.

Interest

Money market accounts are usually subject to higher interest rates. This means that you get more for doing essentially the same thing as keeping your money in a classic savings account. This is because money market accounts are pooled in a different fund used by investors to produce higher profits. This more aggressive form of investing can potentially open up to loss of funds, but this is highly unlikely and has never actually occurred. With the risk being this low, the higher interest rates are widely accepted as a smart trade off.

Access to Funds

Another benefit is that you have more access to the money you deposit into it. Unlike a savings account where you may withdraw a maximum of three times per month, you are allowed to withdraw or transfer out six timers per billing statement. Additionally, most banks will allow you the option to write checks directly from it. Even better, many banks will also allow you to pair a debit card with the account for easier withdrawals and spending. This allows for greater flexibility than a standard savings account.

Security

As mentioned above, these accounts have never lost any money. This makes them a safer place to leave your money while still receiving a decent return. With the volatile nature of the stock market, this is certainly a better guarantee to maintain and build your funds.

Drawbacks

While a money market account is more appealing than traditional savings in terms of returns, it certainly does not compare to the returns of a mutual fund or other stock options. If your primary interest is to generate greater income, then this safer option might not be for you. To put it into comparison, a stock can return on average 8-10% while these bring closer to 2-4%. At best, you are looking at making half of the amount.