savings

The Essentials of Money-Market Accounts

They may pay higher interest rates than your checking account, but there's more to consider.

Money-market deposit accounts (MMDAs), which are sometimes called money-market investment accounts, pay higher interest rates than some checking accounts do. However, the minimum-deposit levels are higher and transfers from the account are limited. MMDAs are meant for savings, not for funds to which you need ready and repeated access.

Institutions often charge fees if your account falls below minimum-balance requirements. Rates aren't guaranteed; they change along with market rates.

Money-market funds

These are mutual funds that invest in very short-term debt instruments issued by corporations, banks and the U.S. Treasury. They can be excellent when you want to park savings someplace while you ponder longer-term investments. Because they are safe, many people have come to consider money-market funds as a permanent part of their savings plans, as well as a hedge against investment market risks. However, with short-term Treasury securities yielding almost nothing, now you will earn almost no interest on the funds you deposit in these accounts.

Although $1,000 is a common minimum initial investment, some funds are available for less, and virtually all accept smaller amounts for subsequent investments.

Most funds permit you to write checks on your account, although the high minimum for checks -- usually $250 or $500 -- makes money-market funds unsuitable for everyday bill paying. Shares are generally redeemable at any time.

Asset-management accounts

This type of account, which is offered by brokerage firms and banks, can be a good vehicle for managing your cash if you have a lot of it and feel you can use the other services such accounts deliver.

Both full-service and discount brokers offer cash management accounts to clients who have stocks, bonds, cash, mutual fund shares, or a combination of the four in their accounts. Customers get a line of credit, check-writing privileges on their money-market funds, and several other services. The fee ranges from $50 to $300 a year but may be waived if you have $100,000 or more in your account.

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