Money Market Accounts

You find the going tough, huh? It is hard to digest, but it is true that when it rains, it pours. Stock markets are down in the dumps, the bulls have been horned, and bears rule the reign. Real-estate mutual funds also do not paint a rosy picture, thanks to the sub prime fiasco. Many have gone bust, and the few still limping around at best turn in negative returns. Hard times are here to stay, for a long time to come. So now, where oh where do you put your hard earned money? Mind you, these are troubled times, and it pays to put paramount importance on preservation of capital than on returns.

It is a well known fact that an ordinary savings bank account with any of the banks in the U.S. turns in a measly yield of 0.45% per annum, but it enjoys full backing by the federal government. Here is an excellent alternative called money market account, that earns an attractive rate of interest plus the solid backing by the bank in which the account is maintained. It is much the same as a regular savings bank account with the only difference that you will have to maintain a higher minimum balance that ranges from $1000 to $2500, depending upon the bank in which you maintain your account.

The ruling rate on money market accounts is a hefty 3.05% as on February 22nd 2009. The nice thing about money market accounts is that check facility is available like in a regular savings account and banks permit as much as three withdrawals per month. The minimum deposit amount is as low as $1000 and no better rate is available for this amount in the entire country.

Now, let us not confuse a money market account with a money market fund which are essentially mutual funds run by brokerages. Investors would receive shares allotted to them in the mutual fund that would buy and sell securities like commercial paper for example. Investors run the risk on such securities.

Money market account, on the other hand is a pure deposit in a bank and banks have the liability to the depositors to repay the invested amount. Simply put, a money market account is a liability of the bank to which it would accord top priority at all times. Even though it is not backed by specific assets which may or may not perform, it is backed by the entire bank.

Most important of all facts is that like a regular account with check facility money market accounts are covered by insurance from FDIC. Regulation Q does not allow paying any interest upon an account with check facility, but due to various restrictions these are not considered as checking accounts legally, and so interest can be paid on this account.

Six withdrawals are permitted per month and three of them could be by issuing checks. Usually, debit cards are issued to the customers holding money market accounts. Legally, it is not considered as a transaction account and so only regulations pertaining to a regular savings bank apply.