The Benefits of Money Market Accounts
Tired of risky investments and low earnings? A money market account (MMA) is similar to an interest-bearing checking account but generally pays higher interest rates than a typical savings account. Rules govern minimum deposits and withdrawals, and MMAs are FDIC insured.
This low-risk investment can add up over time, according to Bankrate columnist Don Taylor, who shares his advice on the risks and rewards of money market accounts which are below.
Why choose a money market account?
Savers must strike a balance between safety, yield, liquidity, and convenience. MMAs currently yield more than typical money market mutual funds and don’t have the early withdrawal penalties of a certificate of deposit (CD).
When is a money market account the right answer?
Yields are so low in money market mutual funds that it’s hard to argue for investing in one. When MMA and CD rates are comparable, the MMA is preferred for its liquidity. With savings, protecting principal is more important than chasing returns.
Aren't high returns important as retirement nears?
Swinging for the fences as you approach retirement isn’t a sound savings strategy. Late-career investments typically focus on managing risk, not ramping it up.
So, security drives the decision?
Protecting your principal is only part of the equation; protecting the purchasing power of your savings is equally important − which means yields have to be higher than the rate of inflation. That’s not happening in today’s low-yield environment. Some MMA returns rival short- to intermediate-term CDs. Savers are trying to avoid being “long and wrong” with long-term CDs.
With a money market account through AAA and Discover Bank, there is no minimum deposit required, easy account set-up and management, 24/7 U.S.-based customer service, and the security of knowing your money is FDIC insured.
Lock in security at a good return. Visit AAA.com/Deposits or call toll-free 1-888-728-3230 to learn more about AAA's money market accounts through Discover Bank.
Interview with Don Taylor, PhD, CFA, CFP®, Bankrate columnist, Assistant Professor of Finance at Penn State Brandywine