One type of bank account you should consider opening is a Money Market Deposit account. The Money Market Deposit Account as the name implies is a deposit account that has the features of both a savings account and a checking account. One feature that this type of account shares with a savings account is that both accounts are interest yielding accounts. While on the other hand, the account is similar to a checking account in that checks are issued to account holders. In other words, this type of account allows you to enable the best of both a savings account and a checking account. The Money Market Deposit account option is offered by both commercial banks and credit unions.
Advantages of a Money Market Deposit Account
Are there reasons why you should go for this type of account instead of the traditional savings or checking accounts? The answer is yes, there are some positive reasons or advantages that come with opening a Money Market Deposit Account. The advantages include
a. Interest: One good advantage of creating a money market deposit account is that you get to earn interest on the account. This is one feature that this type of account shares with a savings account and that is why it is a better option than a checking account. If you want an option where you get paid to save your money, you should consider this type of account.
b. The Account is Safe: This type of account is safe. The amount in a Money Market Deposit Account is insured by the Federal Deposit Insurance Corporation FDIC. Likewise, if you open the account with a credit union, the money is insured by the National Credit Union Administration. Both insurance options cover the money in the account unto $250,000. This means that your money is safe even if the bank or credit union goes bankrupt.
c. Easy Liquidity: Liquidity has to do with the ease of converting an instrument into cash. You have easy access to the money in this account. You can easily withdraw from the account with a check, debit card or in person bank.
d. Higher Returns on Investment: Another major advantage the money market deposit account has over a checking or savings account is that it comes with a higher interest rate. The interest rate for a traditional savings account starts from 0.08% and can go as high as 1.9% while that of a money market deposit account starts from 0.17% and can go as high as 2.10%.
e. Low Risk: This type of account generally comes with very little risk.
Disadvantages of a Money Market Deposit Account
It is best to mention the cons of this type of account to help you make an informed decision. Despite the advantages that come with this type of account, there are some cons associated with it too.
a. Withdrawal Limits: There is a limit to the number of times you can withdraw from the account in a month. There is a six times electronic payment or transfer limit for this type of account. This limit is placed by the Federal Reserve Regulation. Notwithstanding, you can continue to make unlimited withdrawals with an ATM or at the bank.
b. Bad for Long-term Investment: Despite the fact that this type of account makes for a good low-risk investment, it is a bad investment option for long term investment. The reason is that the interest rate is very low and in fact lower than the annual inflation rate.
What Happens When You Make More Than Six Transactions In a Month
It was mentioned earlier that there a limit to the number of electronic transfers that can be made with a money market deposit account in a month. What then happens when you continue to make such transfers? When you continue to initiate transfers after you exhaust the monthly limit, your bank will send you a warning message. After that, the bank has the right to convert your account into a checking account if you continue to make such transfers. Few banks will charge you withdrawal penalty fees for each transaction you make above the monthly limit.
How to Open a Money Market Deposit Account
The process of opening a money market deposit account is straight forward and similar to the process of opening other traditional accounts. The steps involved include
Step 1: Make A Choice of Financial Institutions
The financial institutions that offer this type of account are the traditional banks and credit unions. Carry out a research on the banks and find out more details on the account for each bank. For instance, the interest rate and minimum balance for this type of account vary with most banks.
Step 2: Reach out to The Bank
After you’ve made a choice of financial institution, the next step is to reach out to the bank. You can get the customer service’s number from the bank’s website or you can pay a visit to any of their branch near you. When going to the bank, it is advisable to go with a means of identification and the required minimum balance.
In conclusion, if you are looking for a type of account to keep the money for emergencies or short term savings, you can consider opening a money market savings account.