Money market accounts were really popular before the rise of online savings accounts and electronic transfer of funds. In the past, if you had a savings and checking, you would have to visit a branch to transfer funds between the two. It was more convenient to use a money market account to write checks than go to a branch, transfer money from savings to checking, and then write a check.
Nowadays, I don't see much value in money market accounts but they sure were popular in the 80's.
Do you have a money market account? If so, can you name any other benefits or drawbacks to them over alternatives?
Jim writes about money matters at his personal finance blog Bargaineering.com.
Photo: armydre2008)
]]>Let's be clear here. A money market savings account is one thing, and a money market FUND is another.
First, a money market savings may be FDIC OR NCUA insured depending on if it is held at a bank or a credit union.
A money market FUND is not FDIC or NCUA insured but is usually backed by the issuer to not lose any principal value.
The big difference is that a money market savings is just a high yield savings but a money market fund is actually an investment product. (hence the one being federally insured and the other not)
]]>With the money market, you lose that restriction, and often gain other features as well. For example, many institutions will allow you to configure customized "sweeps" of money market accounts.
]]>There wasn't any real risk until recently. Google for "breaking the buck" to see what happened.
]]>For a while it was a good way to hold the bulk of your savings that you hadn't otherwise invested. But with interest rates so low now, it's hardly worthwhile.
I have not figured out the point of having money split 3 ways into savings, checking, money management, but I guess you have to play their little games if you want to earn interest while being able to write checks.
]]>Always pay your balance in full each month. After six months, try an issuer like capital one or Discover if you're in college.
]]>You trusted PayPal with $20,000???? Wow. I wouldn't trust leaving $20 in my account for more than a week.
]]>Sorry for the caps, but this is really important. There are two financial products that are called "money market" accounts. One is a type of high interest bank account that is FDIC insured. The other one is a "money market mutual fund." These are -not- insured by the FDIC. They can (but almost never do) lose money. In fact, what caused much of the financial crisis of October, 2008 was the failure of a money market mutual fund, which caused a massive panic and bank run.
]]>I used to years ago, around 2006. Paypal had a 5.25% interest rate. I kept $20,000 in it but then the banking crash happened, and the rates dropped to 2% and below. I ended up taking the money out and put it elsewhere.
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