Proverbs 18:9 – “He also that is slothful in his work is brother to him that is a great waster”
Money Market Accounts: Tis Float or Sink
Is it worth it to have a money market account nowadays? Will your cash sink, grow or just park itself is the question!
A money market account or money market deposit account is a deposit account that pays interest based on current interest rates in the money markets.
The interest rates paid are generally higher than those of savings accounts and transaction accounts.
However, some banks will require higher minimum balances in money market accounts to avoid monthly fees and to earn interest.
I am going to over the pros and cons of a money market account. Regular checking accounts have more flexibility than a money market account.
Hint, money market accounts have less flexibility (restrictions) and that’s a con to begin with.
A pro about the money market account is that you can write a check and it can be linked to a debit card.
Many will impose monthly fees if the balance falls below the minimum. This is also a con.
Money market accounts at a bank are insured by the Federal Deposit Insurance Corporation (FDIC).
The FDIC covers certain types of accounts, including MMAs, up to $250,000 per depositor per bank.
If you have other assets with the same bank, remember $250,000 is the insurance limit!
Money market gains
Money market accounts offer higher interest rates than savings accounts. For example, in July 2020, their average interest rate was 0.08%, while the average savings account paid 0.06%.
The highest money market account rate was 1.50%, while the highest savings account rate was 1.15%.
Money market accounts are able to offer higher interest rates because they’re permitted to invest in certificates of deposit (CDs), government securities, and commercial paper.
Saving accounts cannot do this.
The interest rates on money market accounts are variable, so they rise or fall with inflation.
One major downside of money market accounts, compared with checking accounts, is that Federal Reserve Regulation D limits depositors to a total of 6 transfers and electronic payments per month.
Depositors who exceed the limits may be assessed a fine or moved into a regular checking account 🙁
I forgot to mention, you can make as many deposits as you like!
Money market accounts and inflation
When inflation rises, your purchasing power goes down. If inflation outpaces the interest you earn on your bank account, it will feel like losing money.
Your balance might be increasing, but not enough to keep up with higher prices.
If the money in your savings account grows at 1% a year, but the rate of inflation is 4% a year, then the value of your savings is actually shrinking by 3% a year.
Inflation can come about as a result of too much money being in the economy.
Your money market account cannot grow as fast if inflation is at all time high.
If the prices for everything go up and household income doesn’t, people will need to rethink their budgets and spending priorities.
Bottom line, inflation can hurt your finances. Money market accounts or any account based on market rates cannot thrive when inflation is high.
My thoughts
Be mindful if you are considering opening a money market account. The economy as it stands right now is not in the best shape.
Commodities (e.g., oil, silver, gold, coffee) can be another smart investment during inflationary periods.
Silver and gold are strong hedges against inflation, since silver and other precious metals are always in demand.
Similar to commodities, the value of real estate increases with inflation.
Money market accounts come with benefits for sure, I am not trying to give a doom and gloom blog.
I just want to be realistic and let you know your options, remember to shop around!!
DISCLAIMER: I am not a financial adviser. This site is for educational purposes only. It is imperative that you do your own research. I am sharing my opinion from personal research and experience with no guarantee of gains or losses on investments, finance etc.
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11 thoughts on “Money Market Accounts: Tis Float or Sink”
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