Back to Basics: How to Take the First Step into the Money Market

Online Trading » News » Back to Basics: How to Take the First Step into the Money Market

There is never a shortage of investment instruments in today’s modern world. Our forex trading section, for instance, is filled with tips and strategies that will help you stay ahead of the foreign exchange market. The stock market is just as interesting to explore.

For this article, however, we are going to take a step back and cover the basics of one particular instrument: the money market. Money market accounts are just as interesting to use as an investment instrument, and we are going to discuss them in this article.

What is a Money Market Account?

Money market accounts are very similar to your normal savings account. They are accounts in banks and other financial institutions where you can deposit money. You will earn a higher rate of interest on your money when you choose to use a money market account because most banks offer more than 1.4% in Annual Percentage Yield or APY with their money market offers.

Just like a checking account, you can also write checks against your money market account. That said, the number of checks you can write every month is limited. This type of account isn’t designed for everyday transactions. Money market accounts are more for short-term savings with quick maturity.

Of course, you also get the same FDIC or NCUA insurance with your money market accounts, depending on where you open the account. NCUA provides coverage for money market accounts from credit unions, while FDIC insures up to $250,000 of your money in banks.

What are the Advantages of Money Market Accounts?

Before you get to the advantages, we must first discuss why money market accounts exist. Banks and credit unions use money market accounts to cover short-term gaps between credit and debit transactions. The high liquidity nature of this financial instrument pairs well with APY offers from top institutions. You can use money market accounts as a way to earn more interest from your idle money.

The ability to write checks puts money market accounts in the middle of savings and checking accounts. You get the high yield of a savings account as well as the flexibility of a checking account. Most money market accounts also come with zero fees and no minimum balance.

The high APY rates are offered in two forms: introductory rates and post-intro rates. After some introductory months, your APY rate will be lowered. Other accounts let you enjoy the high APY rate for as long as you like. You can find out more about different money market accounts and how they compare from resource centers such as Bankrate.

Getting Started

Getting started with money market accounts is just as easy as opening a new bank account. You can compare rates and find the most attractive money market account to use and create an account before making a deposit. The rest is fully automated; your money will begin to earn interest right away.

As mentioned before, money market accounts are perfect for when you have excess money you don’t need to invest just yet. The higher yield allows you to earn much more for every dollar you deposited, making this financial instrument a handy one to use.

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