Why Money Market Accounts Make the Most Sense

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Why Money Market Accounts Make the Most Sense

Posted On : Oct-11-2011 | seen (425) times | Article Word Count : 697 |

As an investor with excess cash lying around, even just a little bit, you have numerous options as to where you can park it.

As an investor with excess cash lying around, even just a little bit, you have numerous options as to where you can park it. Although there is no hard and fast rule about the perfect place for your cash, generally speaking, you will find the best interest rates on money market accounts, and get the most flexibility and convenience. Here are your choices:

Bank Savings Accounts

This is generally the option that yields the lowest interest rate. The national average for interest rate on savings accounts is 0.25%. That's nowhere near the rate of inflation. On the other side, if you only have a small amount of money, you may not meet minimum balance requirements for other options. In addition, your money is FDIC insured. The truth is, however, your other options have so little risk attached that this insurance is really not necessary.

Bank Checking Accounts

There's not much more of an advantage to checking than savings. Yields are not much higher with checking accounts, and these days banks are charging these accounts with all kind of fees, meaning you may end up losing money on this choice. The advantage is your money is readily available, FDIC insured, and you can write checks against the account.

High Yield Banking Accounts

With the advent of online banks, which are able to keep overhead much lower since they don't have brick-and-mortar branches, aggressive yield hunters can find some good deals. The online banks will offer higher yields to attract accounts, which replace the cost of maintaining branches. Once again, you get the FDIC insurance with this option. However, there is a big disadvantage -- namely, easy access to your own money! The first is that you aren't going to find ATMs on every corner to withdraw your money, and checkwriting may cost extra.

CD's

Certificates of deposit allow you to essentially loan money to your bank for a set period of time. The longer the period, the higher yield you will enjoy. Once again, because it's a bank product, you get the FDIC insurance. The problem is that to significantly beat the rates of all these other options, you have to choose a 2-year CD (or even longer), and have a relatively large balance ($25,000 or more). There's a big disadvantage. You cannot cash that CD in before the maturity date without being hit with a penalty. So your cash is simply not going to be available to you otherwise.

Money Market Accounts

This is probably the best choice, because it has all the benefits with none of the practical disadvantages. A money market account is offered by a bank. It is also FDIC insured. You can have access to your money through just about any method you wish, including checks, electronic transfers, and even ATMs in some cases. If you truly intend to use this account to park your cash, then the big disadvantages may not even apply. The first disadvantage is that if you exceed a certain minimum number of monthly transactions, in which case you get hit with a penalty. Likewise, if you fall below a certain minimum balance, you'll pay a penalty. The good news is that the yield is often right about the same as a high yield bank account without the hassle of being restricted to an online business.

Advice and Important Questions

There are many internet resources that allow you to compare yields across all of these options. Spend the time to find the best candidates. Beware any yield that seems too good to be true. If it is much higher than its peers, look for hidden fees.

Here are important questions to ask yourself.

What kind of service do you need for this account? The less you need, the higher the yield you may find.

What kind of access do you need? If you literally intend to park your cash and rarely access it, then you'll have more flexibility in your options.

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<h1>Why Money Market Accounts Make the Most Sense</h1> Author: <a href='http://www.articleseen.com/profile_Jess Hall.aspx'>Jess Hall</a> 
As an investor with excess cash lying around, even just a little bit, you have numerous options as to where you can park it. Although there is no hard and fast rule about the perfect place for your cash, generally speaking, you will find the best interest rates on money market accounts, and get the most flexibility and convenience. Here are your choices:

Bank Savings Accounts

This is generally the option that yields the lowest interest rate. The national average for interest rate on savings accounts is 0.25%.  That's nowhere near the rate of inflation.  On the other side, if you only have a small amount of money, you may not meet minimum balance requirements for other options.  In addition, your money is FDIC insured.  The truth is, however, your other options have so little risk attached that this insurance is really not necessary.

Bank Checking Accounts

There's not much more of an advantage to checking than savings.  Yields are not much higher with checking accounts, and these days banks are charging these accounts with all kind of fees, meaning you may end up losing money on this choice. The advantage is your money is readily available, FDIC insured, and you can write checks against the account.

High Yield Banking Accounts

With the advent of online banks, which are able to keep overhead much lower since they don't have brick-and-mortar branches, aggressive yield hunters can find some good deals.  The online banks will offer higher yields to attract accounts, which replace the cost of maintaining branches.  Once again, you get the FDIC insurance with this option. However, there is a big disadvantage -- namely, easy access to your own money!  The first is that you aren't going to find ATMs on every corner to withdraw your money, and checkwriting may cost extra.

CD's

Certificates of deposit allow you to essentially loan money to your bank for a set period of time. The longer the period, the higher yield you will enjoy. Once again, because it's a bank product, you get the FDIC insurance. The problem is that to significantly beat the rates of all these other options, you have to choose a 2-year CD (or even longer), and have a relatively large balance ($25,000 or more). There's a big disadvantage.  You cannot cash that CD in before the maturity date without being hit with a penalty. So your cash is simply not going to be available to you otherwise.

Money Market Accounts

This is probably the best choice, because it has all the benefits with none of the practical disadvantages. A money market account is offered by a bank.  It is also FDIC insured.  You can have access to your money through just about any method you wish, including checks, electronic transfers, and even ATMs in some cases. If you truly intend to use this account to park your cash, then the big disadvantages may not even apply. The first disadvantage is that if you exceed a certain minimum number of monthly transactions, in which case you get hit with a penalty. Likewise, if you fall below a certain minimum balance, you'll pay a penalty. The good news is that the yield is often right about the same as a high yield bank account without the hassle of being restricted to an online business.

Advice and Important Questions

There are many internet resources that allow you to compare yields across all of these options.  Spend the time to find the best candidates.  Beware any yield that seems too good to be true.  If it is much higher than its peers, look for hidden fees.

Here are important questions to ask yourself.

What kind of service do you need for this account?  The less you need, the higher the yield you may find.

What kind of access do you need? If you literally intend to park your cash and rarely access it, then you'll have more flexibility in your options.
About the Author: Jess Hall writes out of Jersey City about different investment opportunities, including how to get the <a rel="nofollow" href="http://www.work.com/getting-the-best-interest-rates-on-money-market-accounts-72619/">best interest rates on money market accounts</a>. Looking to stay up to date with the latest financial news, she tends to follow social sharing articles such as <a rel="nofollow" href="http://www.work.com/getting-the-best-interest-rates-on-money-market-accounts-72619/">http://www.work.com/getting-the-best-interest-ra Article Source: <a href='http://www.articleseen.com/Article_Why-Money-Market-Accounts-Make-the-Most-Sense_90442.aspx'> http://www.articleseen.com/Article_Why Money Market Accounts Make the Most Sense_90442.aspx</a>

Article Source : http://www.articleseen.com/Article_Why Money Market Accounts Make the Most Sense_90442.aspx

Author Resource :
Jess Hall writes out of Jersey City about different investment opportunities, including how to get the best interest rates on money market accounts. Looking to stay up to date with the latest financial news, she tends to follow social sharing articles such as http://www.work.com/getting-the-best-interest-ra

Keywords : Best interest rates on money market accounts,

Category : Finance : Investing

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