If you'd like to maximize the interest your money earns without taking on the risks normally associated with investing, you might consider using a money market deposit account. Safer than money market funds, a money market deposit account works like a checking account and can be used in place of your regular checking account – or at least, in combination with your regular checking account.
Money Market Account Advantages
The primary advantage of keeping your money in a money market deposit account is that it pays a slightly higher interest than a regular savings account or interest-earning checking account because the interest rate is tied to the prime rate. Maximizing the interest your money earns is a good way to make your money work for you. The money in money market accounts is also insured by a federal agency, provided you obtain the money market account through an FDIC insured institution, which means you can maximize interest earnings and eliminate investment risk.
Money Market Account Disadvantages
The disadvantages associated with using a money market account instead of a regular checking account involve having to maintain a large minimum balance with most accounts, having a limited number of transactions allowed each month, and paying for maintenance fees and transaction fees. Do research before selecting a money market account in order to find one that allows enough transactions for your needs, and for one that has a minimum balance requirement in line with the amount of money you can maintain in your account.
For some people, using a money market account as their primary checking account is possible, although may require you to have more than one account. If only require writing a few checks to your creditors or for other financial transactions on a monthly basis, you will probably not need an additional checking account. For the majority of people though, having both the money market account and a regular checking account becomes necessary in order to manage the limited transactions allowed on a money market account. You certainly do not want to be charged excessive fees due to making more transactions per month than allowed.
How to Benefit Using A Money Market Account Together With a Regular Checking Account
One way to take advantage of the interest a money market account earns and avoid some of the transaction fees is to use your money market account in combination with your regular checking account. This means that whenever you receive a paycheck or other source of income, you can deposit it directly into the money market account to earn interest from your balance.
When it comes time to pay your bills for the month, you can write one check from the money market account to your regular checking account (or initiate a money transfer via telephone or online if your banks allow it) for the amount you need to pay the bills. This results in having a single outgoing transaction from your money market account to your regular checking account, instead of multiple transactions for every check you need to write or bill you pay.
Ideally, you can establish a once a month schedule for paying all of your bills so that your money remains as long as possible in the money market account. This helps you maximize the amount of interest you can earn on that money before you transfer it to your regular checking account to make payments with it.