Earn good interest on your money with a money market account. (Photo Credit: CC BY-ND/Catherine Hoyle/Wrights Business Research)
If the rate of return on a small savings account were a particle in the natural world, you’d need an electron microscope to see it. For a better rate of return, consider a money market account. While not as liquid as a savings account – you can’t cash it out as quickly – a money market account is a safe investment that you can easily sign up for online.
Money market accounts and money market funds
There are two basic variations when it comes to a money market: the money market account (aka the money market savings account) and the money market fund (aka the money market mutual fund). Money market accounts are products of a bank, and hence such an investment carries the benefit of being FDIC insured. “High-yield savings,” “Internet savings” and “electronic savings” are all terms various banks will use to refer to such accounts. And like a savings account, a money market savings account provides liquidity, although with some limitations not present in a regular savings account.
Money market mutual funds are quality, short-term investments with some liquidity and interest rates that fluctuate daily. While investors have historically had great success with money market funds in terms of safety, there is no FDIC insurance that guarantees investors will get their money back if the issuing bank becomes insolvent.
Research the best money market account or fund for you
Decide what features work best for your financial situation and shop around. Yields will vary greatly from one financial institution to the next. Check Bankrate.com to compare rates. It is important that consumers pay attention to bait-and-switch-style situations in which a bank advertises a high opening rate, only to drop it down later.
Some banks give customers free checks and access to electronic funds transfer (EFT) between a money market fund and checking account. However, the number of monthly transfers allowed will likely be limited.
If you sign up for a money market account through a brokerage, unlimited check writing, an attached debit card and EFT transfers are common features. Any cash surplus between trades and investments performed within a broker money market account are “swept” into a separate money market account that is used to pay for future trades.
Go to your chosen institution’s website
Once you’re on the website for the financial institution of your choice, the procedure to open an account will be spelled out in detail. Print, sign and mail in the required account agreement, as well as the signature card if the option for checks is available. If you have questions, a toll-free number is made available by most issuing banks. Keep in mind that if signing up for a money market account is difficult with a particular bank, it is likely that future transactions involving the account will also be more trouble than they’re worth.
Don’t forget the EFT
If you want the flexibility to be able to instantly transfer money from your money market account or money market mutual fund into your checking account – and the option is available at your bank of choice – make sure to set up the EFT link at sign-up.
