The golden rule for personal finance is to pay yourself first. The sooner you get money into an investment or savings; the more opportunity that money has to compound and grow over time. When people start saving money at a young age, they will almost always have more money than someone who saves higher amounts of money later in life due to the compounding effects of interest on the saved money. The younger person typically has more years to let their savings grow than the older investor and therefore ends up with more money at retirement than the late-saver. Unfortunately, money doesn't grow on trees but if you invest and save wisely, you can help your money grow faster with a money market account.
Money market deposit accounts are similar to a savings account in that you open them through banks and credit unions, and that they are insured by the Federal Deposit Insurance Corporation (FDIC). This eliminates the risk of losing money that other investments have; and ensures your money is safe up to the FDIC limits even if the bank or credit union where you opened your money market account goes out of business.
The main differences between a money market account and your standard bank savings account are:
The minimum initial deposit to open a money market is usually higher than what is required to open a savings account.
Savings accounts offer unlimited withdrawal options while money market accounts limit account holders to three or six (penalty free) withdrawals each month.
Money market accounts pay higher interest than most savings accounts.
It doesn't take a financial expert to understand why money market accounts help your money grow faster than a savings account. You start your account with a higher balance, you withdraw money less frequently, and your money earns a higher interest rate so it's inevitable that money saved in a money market account will earn more than your typical savings account!
The rate of return for money saved in a money market account will vary from one bank to the next, so like any investment – you should do your homework and research each of the options available to you and compare bank fees, balance requirements, and interest rates.
Interest on money market accounts typically grows and compounds daily. This is the real secret to making your money grow faster. A money market account with flourish with consistent deposits – so it's not in your best interest to open an account with an initial balance and then sit back and watch it grow. The more frequently you invest in your account, the faster the money will compound and grow.
Money market accounts is centered on the money market. The banks use the money from money market accounts to lend to other customers on a short term basis, and by limiting the number of withdrawals a money market account holder can make, they're able to pay a higher rate of interest. Of course, the other advantage to saving with money market accounts is that while there are limitations placed on how many times per month you can withdraw money – you can in fact access this money if you need it urgently. Withdrawals above the limits are simply charged a fee of $5 to $10 per withdrawal.
Making your money grow faster in a money market account comes down to consistent deposits. Because the interest is compounded daily, you will quickly start to see growth. For example, if the interest is $1 and you have $100 in your account on day 1, you'll see that on Day 2 your balance is $101. On Day 2, when the interest is compounded, it's based on your current balance of $101 rather than $100, so you'll earn more in interest. When you add additional money to the account, you earn interest on the higher balance, which helps you earn more interest, faster, than accounts that compound at a slower rate.