What Are Money Market Savings Accounts?
In a nutshell, money market savings accounts are characterized by higher balance requirements, higher rates of interest, and lesser number of transactions with guarantee for safely. Instead of reading like a dictionary, let us discuss in detail.
Why money market accounts require high balance requirements?
Everyone knows these accounts can give extraordinary returns on investments. How one can expect banks to pay out money if they don't have anything to invest on your behalf. This basic understanding can very well answer the need for higher balances from customers. With good amount of money, banks can engage in market investments, high interest unsecured lending etc. Banks can happily share the returns they get with you but only when you help to raise their liquidity. This is why you need to maintain a high balance with money market accounts.
Ok, How can I be sure that my money is safe?
If you closely observe money market accounts, you can visibly see the risk involved from your side. Banks don't behave as traditional storehouses for money, instead they play like expert investors and mutual fund managers. Why not you go for mutual funds if banks do almost the same with your money. The reason is that, money in banks can be safer than that in mutual funds. Banks generally insure with FDIC ( Federal Deposit Insurance Corporation ) which can guarantee that your money is safe even if poor bank goes bankrupt! This also sounds an alarm that you need to definitely check for FDIC insurance before thinking of investing in these accounts.
But why I can't carry out transactions freely?
Answer is same gentlemen, how can banks invest your money if you are going to make your account volatile. Say if banks plan to invest a huge sum in an IPO (Initial Public Offer) and most of the account holders withdraw a considerable amount by transacting at large. Banks would ultimately run short of planned money while investing. Volatile money is not worth investing according to banks and is a reality. Hence you should limit your number and volume of transactions as per bank rules.
Why money market accounts require high balance requirements?
Everyone knows these accounts can give extraordinary returns on investments. How one can expect banks to pay out money if they don't have anything to invest on your behalf. This basic understanding can very well answer the need for higher balances from customers. With good amount of money, banks can engage in market investments, high interest unsecured lending etc. Banks can happily share the returns they get with you but only when you help to raise their liquidity. This is why you need to maintain a high balance with money market accounts.
Ok, How can I be sure that my money is safe?
If you closely observe money market accounts, you can visibly see the risk involved from your side. Banks don't behave as traditional storehouses for money, instead they play like expert investors and mutual fund managers. Why not you go for mutual funds if banks do almost the same with your money. The reason is that, money in banks can be safer than that in mutual funds. Banks generally insure with FDIC ( Federal Deposit Insurance Corporation ) which can guarantee that your money is safe even if poor bank goes bankrupt! This also sounds an alarm that you need to definitely check for FDIC insurance before thinking of investing in these accounts.
But why I can't carry out transactions freely?
Answer is same gentlemen, how can banks invest your money if you are going to make your account volatile. Say if banks plan to invest a huge sum in an IPO (Initial Public Offer) and most of the account holders withdraw a considerable amount by transacting at large. Banks would ultimately run short of planned money while investing. Volatile money is not worth investing according to banks and is a reality. Hence you should limit your number and volume of transactions as per bank rules.
