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Tips and Traps When Shopping for a Money Market Account

Posted by  on Sep 04, 2009
 

If you want a safe, secure parking place for cash, it pays to shop carefully, just as you would shop for the best mortgage rate. With low interest rates everywhere, a money market account is a recommended option for secure savings.

A money market account resembles a regular savings account, except that it usually offers a higher interest rate and requires a higher minimum balance than a savings account, often $1,000 or more.

Know Your Bank and Yourself

When shopping for money market rates, remember these four tips:

  1. Be sure that the bank and your account are insured by the Federal Deposit Insurance Corporation. The FDIC Web site can help you estimate the insurance available for your various bank accounts.
  2. Understand the flexibility that the account allows for withdrawing money on short notice, known as liquidity. Money market accounts usually permit about three to six withdrawals per month.
  3. Similar to liquidity, understand the limits on moving your money to other savings or checking accounts at the same bank or other banks.
  4. Know your tolerance for the stability of interest rates. A bank could reduce the rate on your money market account even in a time of rising interest rates. If you place a higher priority on locking in an interest rate, you might prefer saving with a short-term certificate of deposit.

Look Behind the Curtain

You could face a blizzard of offers claiming the best money market rates. Be wary of an attractive introductory rate; it might last for only a short time and leave you earning less in the long run.

If a bank offers a gift for opening a money market account, calculate the value of that gift in relation to the interest that you expect to earn on your deposit. A higher interest rate (or lower fees) would continue to yield advantages to you long after the joy of the gift wears off.

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