Money market is a type of savings account which is offered by several credit unions and banks and it functions just like any other savings account. However there is a difference in money market and other savings accounts as they generally pay much higher interests while they also have minimum balance requirements. These money market accounts might also limit your withdrawals to just six every month. The other difference is that most of the money market accounts also let you write nearly three checks every month just like a checking account. However the best thing about a money market account is that, it is insured by FDIC or Federal Deposit Insurance Corporation which means that even when the credit union or the bank goes out of business for some reason your money would still be secure and available. This FDIC is an independent Federal government agency which was created because more than thousands of banks had failed during 1920s and during 1930s. Moreover during this period not a single person had lost their money who had their money saved in credit unions or banks which were FDIC insured.
Interest in money market account
When you deposit money in the money market savings account it would start earning interest similar to any savings account. The interest is the money which the bank pays you so that they can use your funds to loan other people. However this does not meant that you cannot have your money back when you need. This is just how banks earn money as they sell your money and earn higher interest rates and a small part is paid for using your funds. You just have to open a money market account at any bank and they would pay you interest on the money you have deposited and allowed to be used. The bank would then loan the money to another needy person and would charge them a lightly higher interest rate compared to what they would pay you for your deposit.
Knowing about money market interest rates
The money market interest rates are mainly based on how much of interest the credit union or bank could pay to their customers and still make a profit from the deal. This means that the interest rate is mainly affected by the fees being charged to the customers and also how much money is bade by these financial institutions through loans and also through corporate investments. Therefore the overall health of the country’s economy can also affect the interest rates. The financial institutions are also liable to pay costs which include the employee salaries, office overhead and stockholder dividends before they can determine the money market rates.
The credit unions and banks pay you interest on the balance you have in your savings account and you also earn money from the customer fees along with the interest on the investment and loans. Therefore the difference between how much is earned and how much is paid is known as spread which helps you in determining the interest rates in money market account that each financial institution can pay you or can make money from your funds. When there is a large spread it usually means more money would be available to pay the customer of savings account. The credit union and banks also make money when customers pay interest or take out loans. When the loan includes higher amount there would be also be more funds available to pay out the interest on your savings account or the money market account. More often some part of the interest which is earned through the loan is also paid back to the customers who have savings money market account.
Some part of the money which the credit union or bank pays out in the form of money market interest rate also comes through the interest earned from the investment of their own financial institution. These could include deposit account with other financial organization and even investments made in stock markets like mutual funds. Therefore when the financial institution makes more money through their own investment they would be capable of making more or higher payments as money market rate or interest. Therefore the overall health of international and local economics would affect the investment of the financial institution. This means that the money market rates which could be offered would in return be affected through the overall economy. So, when the credit union or bank loses money in their own investment the money market rates could also be lowered. Therefore the expenses should be paid off before the financial institution can settle on the money market rates. However after the credit union or bank determines how much income they have and if it can cover all the expenses then they would easily find out how much money is remaining to pay off their money market interest rates.