You hear it a lot. What exactly is money market? By definition, it is where financial instruments with short maturities are traded. Basically, participants of the money market borrow and lend in short term. That means the maturing can be from 24 hours to under a year. Eurodollar deposits, US Treasury Bills, and municipal notes are among those that fall under this category.
There are individuals who are looking for a high interest rate for their savings. If you don’t have the risk tolerance to start your own business, it is a good idea that you turn to money market account. The money market savings account typically has a higher interest rate.
The interest rate will most likely depend on the account balance on the money market account. This is called the tiered interest rate. That means the more money you allow institutions to borrow, the higher the interest is.
What’s the catch?
If you are the type of person who plans on getting money from the interest every now and then, you want to look closely at what the Money Market account is. Often times, you will have restrictions on your withdrawal. This means that you will not be able to get as much money as you want from your account. Typically, you can only have three to six withdrawals a month on a money market account.
In addition to this, there is also a minimum opening deposit that is required. However, it isn’t like your typical savings account. Here, you will have to come up with at least $500 or even $2500.
Also, remember that unlike a savings account, this isn’t surprised. If anything happens to your money in the money market like if a bank closes, you will not be given anything.
Also, keep in mind that it is possible for you to lose buying power in the long run if it is a bad economy. If you have return of 3%, the interest rate isn’t enough to beat the inflation. And also, you want to consider the expenses along the way. It is possible that your profit will be taken up by the annual fee.
Is this a good investment?
If you are not business savvy, yes, this can be a good investment. It can be used to diversify your portfolio. Unlike a business that may take years to give you a decent profit, you will only have to wait for a short time with the money market account. This can also be a good way to protect your money from the fluctuating economy.
If you are interested in having a money market account, you can choose from several banks. You will be able to find the right one that fits your needs. But of course, you want to make sure that you know all the details first before you commit your funds into a money market account. In addition to this, you also have to make sure that you don’t put all your savings into a money market account. Keep in mind that this should only be used to diversify your investment.