Have you noticed the irrationality in the stock market lately? 13% unemployment rate, negative GDP growth projections for the year, still the market has recovered all of the March/April losses! The famous saying goes “Markets can stay irrational longer than you can stay solvent”.
With the volatility plaguing the stock market in this time of crisis you may be looking for safer harbors to invest your money. If this is the case a money market account may be just the thing you are looking for. This type of investment will give you added security at the time you need it most.
Potential money invested in the stock market or other types of investments is subjected to changes in the stock market caused by investor confidence or lack thereof.
As rates go down your money goes down and this may not be limited to interest but may include the capital you have invested.
Rather than see your capital disappear you may want to invest in a money market account.
This will keep your money safe from potential careless spending but allow you to access it in an emergency.
With higher interest rates and compound interest, it is the perfect investment in times like these.
The difference between a Money Market Account and Bank Savings
Both types of investments work on the same principles. You save your money in the bank. The bank uses that money to lend to other people at an interest rate of the loan repayment.
You receive payment in terms of interest paid to you by the bank.
There are differences between the two.
The money market account gives you higher interest rates but requires a minimum amount to be deposited and held in the account.
You have access to your money but are limited in the number of times you can make a withdrawal.
If you exceed your withdrawal limit and overdraw the account below the minimum amount you may incur additional charges.
The benefit of this type of account is it offers you a higher interest rate than a savings account and you get daily compound interest.
To see compound interest in action try the Compound Interest Calculator.
This type of account allows you to save a portion of your money and you still have access to it if you find yourself in a tight spot.
The difference between a Money Market Account and other types of investments
The interest rates are lower in a money market account than other types of investments however most of your money is backed by the government.
The money market account shines in times like these as your money is guaranteed up to $250 000 by the government of the United States.
The insurance policyholders are either the Federal Deposit Insurance Corporation known as the FDIC or the National Credit Union Administration or the (NCUA) depending on what type of money market account you have.
To find out more about either the NCUA or the FDIC read this article What is the NCUA? Written by Christy Rakoczy Bieber detailing what each agency is responsible for.
Why Choose to Select an investment with a lower interest rate?
This type of investment will see you through times of uncertainty and if you are looking for a secure investment to keep your money safe.
Many people will agree that this security outweighs the lower interest rate offered.
The difference between a Money Market Account and a Money Market Fund
These two terms money market account and money market fund are often confused but there is an important difference.
A money market fund is where investors, who do not have enough savings to invest their money, jointly pool money together and make an investment.
This money is not guaranteed, meaning it is like other investments where interest is high but potentially you could lose all your money. Wealth is not a race, but a marathon and safe secure markets are steady.
With all the different types of investments, and you are not sure where to begin? Try this money market account by Northern Bank Direct to get a guideline of service fees and offerings you can expect.
You have a money market account now what?
For the most part, you can sit back and watch your money grow and sleep well because you know it is secure.
However, it is a good idea to keep a record of the transactions you make and reconcile this list to the statement you will receive monthly.
This is a short-term investment that will mature anywhere from 6 months to 2 years depending on the time you selected when you made the initial deposit.
When it matures you can reinvest your money into your next money market account.