Money market accounts (MMA) act as a hybrid between a check account and a savings account, offering higher interest rates and flexible access to your funds.
Overall, money market bills are considered a safe and secure place to hold their money. However, it is technically possible to lose money in MMAS But it is very unlikely and the risks are different from those of other investment vehicles.
Understanding how money markets work, what protection offers and the circumstances where you can potentially lose money can help you determine if this type of account meets your needs.
The cash market account is a type of interest deposit account offered by banks and credit unions, which combine characteristics of both inspection and savings account.
Like a check account, the money market account usually allows you to access your funds through a debit card, paper checks or an ATM card.
At the same time, money market bills often provide higher interest rates than traditional savings accounts. However, some MMA has steep minimum balance requirements as well as monthly maintenance fees (although you can often receive these fees by meeting certain requirements).
Your interest rate may be flat, regardless of your balance, or you may be offered multi -stage tariffs with higher APYs offered at higher balances.
Unlike the investment account, you cannot lose your main deposit in the cash market due to market swings. However, there are other ways in which the balance of your account may decrease or lose value in the long run:
-
Taxi: If your account charges a monthly maintenance fee that you cannot give up, or ultimately receive other fees, such as excessive download penalties, your account balance may drop if the fees exceed the interest you earn in the account.
-
Reducing interest rates: Banks and credit unions determine interest on the basis of various economic factors. If you open the cash market when the rates are high but later the percentages decrease, your financial institution may reduce APY on your account. You will not lose money, but you can earn less interest than before.
-
Inflation: Even when interest rates of money market are high, they may not be high enough to surpass the prevailing inflation. You will not lose money again, but your dollars can lose purchasing power over time. Therefore, these and other types of savings accounts are best used for short-term financial needs and goals, not for long-term purposes such as saving retirement.
-
Your financial institution fails: If you open a cash market with a bank, it is very likely that your funds will be insured by the Federal Moisture Insurance Corporation (FDIC). Similarly, if you open an account in the Credit Union, your funds are insured by the National Administration of the Credit Union (NCUA). This means that if in the rare accident the financial institution fails, your money is federally guaranteed up to $ 250,000 per institution, an depositor, a property category. For the greater part of Americans, this is a lot of coverage. But if you have more than $ 250,000 you want to take into account in the money market, consider distributing your funds to multiple banks or credit unions to ensure that all your money is protected.
Read more: 10 best cash market accounts available today
It is important not to confuse money market bills with cash market funds. The latter are investment products that are intended to maintain a stable cost of shares (usually $ 1 per share) and provide income through short -term debt investment.
Although designed to be conservative, these funds can lose value, especially during periods of instability in the market. Unlike MMA, money market funds are not insured by FDIC or NCUA.
If you want to take advantage of money market accounts while minimizing your chances of losing money, consider the following tips:
-
Stay below FDIC/NCUA insurance restrictions: If you have more than $ 250,000 to deposit, divide your funds between multiple institutions to remain fully protected.
-
Choose an account without a taxi: Look for MMA without maintenance fees or minimum balance requirements.
-
Compare interest rates: Some MMA offer higher yields than others. Shopping around can help you beat inflation (or at least narrow the difference).
-
Read the fine print: Make sure you understand the download limits and other account rules so that you do not impose unnecessary penalties.