Consumers who are looking for a safe investment that pays a reasonable rate of return often turn to money market accounts. Every bank seems to claim to pay the best money market rates, and rates can change daily. The best money market rates can usually be found online or with small local banks and credit unions, however.
Money market accounts are savings accounts that typically pay a higher rate of interest than a passbook or statement savings account. These accounts usually have a minimum balance requirement, and there may be restrictions on the number of transactions you can make each month. Money market savings accounts are often used as an account to hold cash reserves or an emergency fund. In the US, money market accounts are liquid and safe, because they are insured by the Federal Deposit Insurance Corporation (FDIC).
Money market funds are mutual funds that invest in money markets, which are short-term debt obligations with fixed interest rates. A money market mutual fund can be a good cash equivalent in your investment portfolio.
Since money markets pay a fixed rate of interest, it is important to shop around to determine which banks have the best money market rates. Money market rates can change on a daily basis, so keeping up with current rates can pay off. To easily find the best money market rates, start with the Internet. There are several web sites that list current money market rates, and they are updated frequently. Be sure to check the web site of the bank itself to be sure you have the most current rate.
Compare the rates you find online with those available at your local bank or credit union. Sometimes your current bank will combine your account balances to help you qualify for a higher rate. A credit union can often have the highest money market rates because they are owned by members, not shareholders, which allows the credit union to pay out more in interest than a publicly held bank.
Once you find the institution offering the best money market rates, deposit your money and leave it there. You can spend all day looking for a better rate, but if you move your money too often, you will lose money in the end. The interest lost in the few days it takes to move your account can quickly eliminate the advantage of an interest rate that is a few basis points higher.