Money Market Finance
How Does a Money Market Account Work? Money Market Accounts Explained
In order to answer the question of how does a money market account work, we have to understand what a money market account is. Simply put, it’s a worldwide market for short-term loans between banks, financial institutions, governments and banks. When this money is borrowed, you are paid interest that accrues every day into this account once a month. That account, in turn also accrues interest. This is called compound interest. The money borrowed from you is invested by the bank into The Money Market.
You can open a money market account up at any bank or credit union. The minimum requirement for money market account ranges from $1000-$2,500. Sometimes money market accounts are confused with money market funds. They are not the same. A Money Market Fund is a mutual fund that slowly over times allows an increase your investment. They act as sort of a safeguard against big losses. How a money market account works is much more lucrative than a money market fund. The money market account allows a fairly fast return on a daily basis, therefore increasing the monetary value of the account.
On the other hand, higher interest money market accounts are a good investment as well. They allow you to yield a higher interest rate because you have to invest more money into the account which is required by the bank or credit union to accrue higher interest in this account. The investor also has to maintain a higher balance on the account and there is a minimum amount required to maintain the account, but the investor is still allowed to withdraw from the account at least one per month without penalties for withdrawal, although in order to maintain a higher interest account you must still maintain the original minimum balance.
Money market rates also apply in how a money market account works. The rates may be higher depending on the type of account opened by the investor. You may open up as many money market accounts as you like. The rates pay more than a regular savings account but these rates can still vary in amount, but it also depends on the bank in which the amount is opened. Current laws protect all money market accounts up to $250,000.00. This is called deposit insurance. Bank accounts are insured by the FDIC. This insurance guarantees that even if the bank for credit union goes out of business the insurance still covers your investment. Credit unions are insured by the NCUA.
This article was brought to you by Cina Tucci on behalf of
Tropical Financial Credit Union
. Tropical Financial Credit Union offers free checking, the best current interest rates on used car loans,
money market accounts
and other financial services to members in Dade, Broward and Palm Beach County, Florida.
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