Many people are discovering that a bank money market account can be a stronger choice than one held at an investment company. Let's examine some facts about these accounts, so that you can get started with some strong financial planning advice for your retirement plan.
Fact #1: There are two kinds of money market accounts.
The first type of money market account to be aware of is the mutual fund. With this type, short term securities create income for you. The second type is a bank money market account. This differs from a mutual fund, because the lender sets the rate. Keep in mind, however, that each of these are considered to be safe investments.
Fact #2: Difference in yields can be tremendous.
The yields you will see between a money market fund that is handled through an investment company and one that goes through a banking institution can be vastly different. To put it in more concrete numbers, a bank money market account can yield as much as .90%. But a normal money market fund has a yield of only .06%. Yes, this amount can rise to as much as .15%, but this is still considerably lower.
Fact #3: Be aware of the highest yielding banks.
Even among banks, the yield amounts can differ considerably. Several banks now have yields above .75%. For example, Florida-based EverBank is currently offering yields of .76%, while online financial institution Ally Bank is at 84%. In the case of Ally Bank, an online institution can offer higher yields due to their low operating costs. However, the highest yielding bank right now is Sallie Mae, which offers bank money market accounts with a yield of .90%.
Fact #4: Account fees may be a part of the deal.
Bank fees are common with a variety of products, and bank money market accounts are sometimes no exception. For example, Florida's EverBank charges a monthly fee of $8.95 for their money market accounts. This fee, however, is only in effect for accounts that are less than $5000. There is no fee if your account has more than that amount.
Fact #5: There is a simple reason for the difference in rates.
Although new rules in recent years have made all money market accounts even safer than they had been in the past, recent rules have also restricted what the funds can buy, which have caused a tightening of the rates when it comes to normal money market accounts. However, banking institutions are able to pay "artificial rates" due to such things as funding needs and competitive funds, which means they can offer a higher yield.
Fact #6: Bank money market accounts offer a number of advantages over similar accounts.
The best financial planning advice is simple: do your homework. Several different types of bank products offer similar rates when compared to what bank money market accounts can offer. An advantage that bank money market accounts often have over other similarly yielding products are checking options that these other banking products do not offer. Also, it is important to note that when you open up a CD, for example, your money cannot be used for months or years, depending on its terms.
One other big advantage of going through a banking institution for your money market needs is the protection offered by the FDIC. Each account that you hold is protected or up to $250,000, per account holder. This can be a huge factor in deciding where to hold your accounts, but if in doubt, professional financial planning advice will help you sift through the pros and cons.
Source: http://firstsecurityfinancialshow.com/blog/bid/116992/Time-to-Leave-Your-Money-Market-Fund
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