Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some continued
education for some credentials I maintain and it occurred to me that we all
could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
With Bank and Credit Union savings interest rates still
very low, many investors are looking at cash management accounts with brokerage
houses for higher rates and more flexibility.
Here below is an article that speaks to this idea:
Money Market Accounts:
Definition,
Pros, and Cons
Updated July 30, 2019
A money
market account (MMA) offers a safe place to keep your money and enjoy features
such as interest on your deposits, easy access to your money, and the ability
to write checks.
Money market accounts combine some of the best features of both
checking and savings
accounts, but every type of account has its pros and cons. While you get
certain features with these types of accounts, you might have to give up a few
others.
Money Market Accounts vs. Savings and Checking
A few key differences exist between Money
Market Accounts (MMAs) and savings
accounts, such as higher minimum deposit requirements for MMAs, and
lower interest rates for a regular savings account. With a money market
account, you'll be able to write a limited number of checks, unlike a
traditional checking account.
The Pros: Earnings and Access
MMAs—like savings accounts—pay interest. They’re a safe place to
store cash because they’re FDIC insured or, in
the case of a credit union, NCUSIF
insured.
You'll often get better
interest rates on an MMA than you’ll get from a traditional savings account,
because the interest is compounded daily. Larger account balances also help you
earn more interest, and the return is usually somewhere between a certificate
of deposit (CD) and a savings account when it comes to earnings potential.
Like checking accounts, MMAs make it easy to access your money.
Most accounts allow you to write checks or withdraw cash, and some offer a debit
card you can use to make purchases. This easy access, combined with
a competitive interest rate, is what has traditionally made MMAs unique. In
recent years, rewards checking, interest
checking accounts, and online banks have become more popular and offer the same
benefits, but sometimes you’ll get a better deal from a money market account.
The Cons: Minimum Balance and Withdrawal Limitations
MMAs have some nice features, but you should be aware of a few
things before opening an account:
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·
Large minimum balance: MMAs
might only be available if you have at least $2,500 to place in an account. If
your account balance falls below the minimum, expect to pay monthly fees, which
eat into your return.
·
Transaction limits: You
have access to cash in an MMA, but you won’t be able to make payments with your
checkbook or debit card more than six times per month by law; some banks allow
only three payments per month. You can withdraw cash as often as you like, but
these accounts aren’t as flexible as your checking account when it comes to
everyday use.
·
Not right for everyone: Money
market accounts might not be the right tool for your needs. Could you earn more
by using CDs? If you use a series of CDs—known as a CD
ladder—you can earn decent returns while keeping some of your money
liquid and minimizing early withdrawal
penalties. If you’re investing for the long term, talk with a financial
planner about what mix of investments can best help you reach your goals.
·
Safety insurance: Make
sure you use an MMA from a bank or credit union, which will insure your funds.
Don't confuse these accounts with money market mutual funds, which have a role
in investment planning but are not the same thing. Ask your bank or credit
union to verify your funds are insured, and keep your deposits below
the maximum covered limits.
·
Introductory interest rates: If the
rate sounds too good to be true, double-check to make sure it's a permanent
interest rate, not a promotional
rate that
will disappear in a month.
The Best Uses for Money Market Accounts
MMAs are useful for the money you might need in the relatively
near future. They allow you to earn a small return while keeping the funds safe
and accessible. They’re especially useful for large, infrequent expenses such
as:
·
Emergency funds
·
Budgeting for quarterly tax payments
·
Tuition
Again, this isn’t the best place to keep funds for regular
expenses because of the limits on how many check-based payments you can make.
That said, to earn a bit more interest you could keep funds in an MMA for a few
of your largest monthly expenses, such as your mortgage.
(As with any of these informative articles,
anyone who needs someone to talk to about
this very subject contact
me and I can direct you to a
knowledgeable advisor).~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Full post disclaimer in left column. PCN Home Page is located at: http://pcn.homestead.com/home01.html
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