Watch Your Savings Grow with a Money Market Account

If you've ever been intimidated by the idea of investing, it's time to find a savings solution that offers minimal risk with the potential for high rewards. Money market accounts are a popular choice among investors who want to save for the future without taking on too much uncertainty. Before you open an account, use this introductory guide to learn about the process. With a deeper understanding of the way the account works and the benefits you'll receive, you'll know exactly what features you need when you start looking for a new bank.

Understanding Your Account

Money market accounts are similar to savings accounts in many ways. You'll invest a particular amount of cash and earn interest on the balance. Banks are able to offer higher interest rates because they take the funds from your account and put them into short-term investments. Since they earn from your savings, you receive higher interest rates in return. Though you'll typically be required to invest a higher amount upfront, you'll have the freedom to withdraw your savings whenever you're ready to spend it. Withdrawals are generally limited to six transactions per month, so you should not treat the account as a checking account.

Finding the Right Account for Your Savings Goals

Many experts advise investors to use money market accounts for emergency funds. If an emergency arises, you'll be able to access the funds in your account right away without incurring any penalties. The higher interest rate also helps you work toward your savings goals. Your emergency fund should include enough cash to cover all of your expenses for three to six months. If you lose your job or are unable to work for any reason, you'll have enough cash saved to cover important bills and essential expenses. You can also use your emergency fund for unexpected bills like car repairs or medical costs. However, because you're limited to six withdrawals per month, you won't be tempted to use the funds for nonessential items.

Earning Competitive Interest Rates

Interest rates are determined by the market's average rates, so it's important to open your account at the right time. Prior to opening your account, watch for trends in interest rates and stock prices. Patterns in the market can give you an indication as to the best time to invest. Once you've opened your account, be aware that your interest rate will continue to change. However, the principal deposit will always remain untouched in your account.

Saving for the Near Future

Investors prefer accessible accounts for short-term savings. Use this account when you're saving for a specific goal or an upcoming expense such as a vacation or new car. You'll earn higher interest rates in a short period of time, which allows you to build up the balance of your account more quickly. Additionally, the funds are easy to withdraw when the time arrives. While investments like certificates of deposit might carry even higher interest rates, it's harder to withdraw your savings before the fund has matured. Choose an account that allows you to reach your savings goals on your own terms.

Enjoying Security and Protection

You'll also enjoy a sense of security and protection when you open a money market account. With an unpredictable economy and volatile market conditions to work against, it's important to find an investment that offers you stability. While your interest rates will fluctuate, your initial balance is always protected. The funds in your account are also insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. A secure savings opportunity with high interest rates is a sound option for investors looking to eliminate risk.