Money Market Accounts

Saving for a rainy day requires discipline, and sometimes a bit of help from your banker as well. Below are some tips on a money market account that might provide the umbrella you need. Money market accounts combine the liquidity of available funds with the discipline imposed by a federal limit on certain transactions. A money market account is a savings account offered by banks and credit unions, insured by the FDIC, and generally requires a higher minimum balance. You are allowed to make no more than 6 withdrawals and transfers per month if the transactions are to cover overdrafts, automatic bill payments, wire transfers, telephone transfers and PC banking transfers. Usually though, money market account holders are allowed to make unlimited free deposits and withdrawals from ATMs in their network. Money market account holders are limited to three checks per month. If you exceed the allotment, you may be charged between $5 and $15 per check, and may run the risk of having the account closed. Some financial planners maintain that we should have three to six months of cash, or cash equivalents (i.e. liquid funds) on hand for emergencies. A money market account might be a good choice for your emergency fund. As well, these types of accounts can be ideal for medium-term expenses, such as saving for a down payment on a car, or larger ticket items such as furniture and appliances. Money market accounts provide a higher rate of return than a regular savings account. Locally, the basic money market account yield is 1.2%, as compared to the savings yield of .62 There are a number of premium money market accounts that pay interest rates tied to the 91 day Treasury Bill rate, or to another index. Locally, you might earn 4% or better on these types of accounts, as long as you maintain the minimum. Money market accounts are great for money that you plan to hold, or build for a short period, and that needs to be liquid. They can provide safe havens for individuals who want to avoid the risks of the stock market. Discipline imposed by federal limits on transactions may help you save for that rainy day.