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Getting to know your money market account

Here is a quick quiz: What bank account pays better interest than the regular savings account? Compared to others, which account has lower financial risks? What account has a higher minimum balance requirement but pays all the interest and the principal during maturity? Your answers are clues on how much you know about the money market.

Account category

Basically, the answer to all of the questions above pertains to money market account. Like the other regular bank accounts (i.e. savings, current, time deposit, and others) it was devised to also earn interest.

However, money market investments traditionally yield better interest rates than those of the other types of accounts. Savings accounts, for instance, are generally allowed to have low minimum balance amount by the banks.

Its money market counterpart has higher balance requirements (starting at around £25,000). Higher amounts of investment empower bank investors to be aggressive in investing your money, thus the higher earnings.

Other differences

Transactions in the money market category are usually charged a certain amount of service fee (around one-half percent). Account holders also have access to the daily money market interbank rates. (In the UK, the wholesale rates are furnished by the London Interbank Offered Rate or LIBOR.)

A money market account also has another rigid requirement vis-à-vis a regular bank account. If you intend to transfer funds (withdrawals), you still have to maintain the required minimum balance.

Some ease and snags

However, money market deposits are flexible in terms of the length of your deposit (one day to almost a year). When the setup is in place, a convenient phone call is all you need to instruct your bank regarding your account.

In the UK, some provider banks include Allstate Bank, GMAC Bank, Citibank, Netbank, NewDominion Bank among many others. Due to competition, investors find out that calculations of money market commissions from the banks are usually disparate. Are you thinking of going into the money market?

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