|
Money Market Accounts and Funds
In most states, the typical bank offers this
basic lineup of accounts:
- Checking Accounts - some pay interest, some
do not.
- Savings Accounts - pay interest and usually
do not limit withdrawals.
- Money Market Accounts - also called Money
Market Deposit Accounts. Pay more interest
than Savings Accounts and limit the frequency
of withdrawals.
- Certificates of Deposit (CDs) - pay the highest
interest rates. Penalize you with complete
or partial loss of interest for withdrawals
before maturity.
The general rule is, the less
access you
have to your money and the longer
it is left
on deposit with the bank, the
higher the
rate of interest you will get.
However, there
are some intriguing exceptions.
Some banks
offer so-called High Value Checking
Accounts
(or something similar) that actually
pay
more interest than CDs with long
maturities.
Money Market Accounts at banks
are easily
confused with Money Market Funds,
also called
Money Market Mutual Funds. Money
Market Funds
have these qualities:
- Money Market Funds are not FDIC insured.
- Mutual fund companies or brokerage firms,
not banks, offer Money Market Funds.
- There have been rare instances when the net
asset value (NAV) of a Money Market Fund
has dipped below the target of $1.00 per
share. In these cases, investors making withdrawals
lost some principal. This danger is real
but rare.
- Money Market Funds often allow you to write
checks on the account. There tend to be fewer
restrictions on withdrawals than with bank
Money Market Accounts and often no restrictions
at all.
- Some Money Market Funds invest in municipal
securities, making them free from federal
income tax and possibly also from state income
tax as well.
When you shop around for a place
to park
your cash, these are the main
considerations
that you must balance against
each other:
- Whether your principal is insured
- Access to your money (how, when, and how
often)
- Interest rate
- Convenience of doing business. Internet banking
and investing appeals to many people in this
regard.
|
|
|
