Money Market Investing, What Is It And How Does It Work?
I’ve been asked a lot of questions about money market investing, so here is a short explanation which I hope answers your questions.
A money market account is similar to a normal savings account accept it usually pays more interest. The price for this higher interest is that you have less flexibility. You will usually be required to carry a minimum balance ($1000-$2500) and you will typically be restricted to 3-6 withdrawals each month. Most accounts will also allow you to write 3 cheques per month.
Banks will then loan your money to others at a higher rate of interest than they are paying you. This is how the banks make money.
Shop around, interest rates on money market accounts vary greatly depending how badly the particular bank want new accounts opened. Interest on these accounts is compounded daily and paid monthly. Some banks increase their rate as the amount you deposit increases, so shop around if you plan to deposit larger amounts.
Be aware of penalties and fees before opening an account. Many banks will charge if you go below the account minimum or if you exceed the number of allowed monthly withdrawals (usually $5-$10 charge).
Money market accounts are a good idea if you have a sum money with which you are not sure what to do at present and you wish to keep it in a safe place with a decent rate of return. As always seek professional advice before investing.
I hope this helps
Money Market Investing
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