Money market accounts often offer better interest rates than savings accounts. While both of these accounts traditionally require account holders to sacrifice liquidity in exchange for good interest, money market accounts are especially strict about withdrawing cash.
What Do Banks Do With The Money?
Generally, banks will require a minimum deposit and balance with money market accounts. This is because the bank will take the funds in a money market account and invest it in baskets of very conservative securities. Sometimes, banks will invest in government bonds and other tight types of accounts.
You can often find the best interest rates with online money market accounts. Everbank is becoming increasingly popular with online investors. Some of these online accounts even have specials that allow investors to have more liquid access to their funds.
Restrictions on Liquidity
Usually, you’ll be restricted to about six withdrawals per month from a money market account. The whole point of a money market account is to keep the funds in the account so that the money can accrue interest. You should make sure that your funds earn compounded interest in your money market account.
You can invest in high yield money market accounts, which will offer higher interest but will also require higher deposits and minimum balances. High yield accounts are usually more subject to restrictions on liquidity.
Aim higher with money market accounts often. It makes a lot more sense to open a money market account than a savings account simply because interest rates are generally better on money market accounts. Still, it’s important to evaluate all of the terms within money market accounts before investing.