July 10, 2009

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Safe and Versatile

Money Market Accounts Offer Added Advantages to Savings

By Jennifer Stoddard

July 10, 2009

One positive result from the current economic recession is that more Americans are starting to save money. If you or your business is taking on this challenge by depositing cash in a conventional savings or checking account, you might be missing out on some additional revenues you might not have considered. All business owners want to safely invest their money and get the maximum return on their investments. One of the safest investments a business can leverage is a money market account. The term money market refers to the global financial market in which short-term investments are made. These interest-bearing accounts are invested in short-term securities and are offered at most financial institutions including credit unions. The benefits of a money market account are many, beginning with the idea that you can earn a higher yield than on a traditional savings account, you can manage the account online and the money can be easily accessed when needed. Like a traditional savings account, a money market account allows you to make deposits, take withdrawals and transfer money. However, most accounts have a monthly transaction limit, but they still provide more flexibility and are more reliable than stocks or other investments. Money market accounts differ from CDs in that there are no time constraints to access your funds. Before opening a money market account, consider the following: • Many institutions have tiered options for accounts, so look carefully at all the different offerings and understand what best fits your needs. Usually the higher the interest rate, the more money it requires for a balance. • Be cautious of introductory rates and look for the best regular interest rate. An introductory interest rate is usually not the same as the regular rate, which kicks in after a couple of months, and you’ll be at the regular rate for a much longer time. • Make sure your financial institution is federally insured. Regardless of the interest rate offered, if a bank or credit union’s accounts are not insured then your money is not safe. The Federal Deposit Insurance Corporation (FDIC) or The National Credit Union Association (NCUA) means that even if the bank or credit union goes out of business, your money will still be covered. • Consider opening up a money market account where you have a checking account. This way you can easily transfer money from your money market account into your checking account for payroll or other expenses. Ask your financial institution about setting up automatic transfers to help with cash flow for peak times. • The amount needed for an opening deposit is going to be a lot more than a traditional savings account. Some credit unions or banks will require an opening balance of $1,000 or $2,500. With a savings account the opening is much lower such as $50 to $100 dollars. • If you go below your minimum balance, your account may stop paying interest and you may be subject to a fee. It’s always a good idea to check with your financial institution to see the requirements and understand how to get the best return. • Clearly know how many checks or transactions you can write per month on the account. This will help you manage cash flow and understand what options you have to leverage the funds. Overall, money market accounts can be a great tool for your business to leverage with the extra cash in a savings account. Often, business owners forget that money market accounts can be a simple way to earn additional interest and still have access to the funds if needed. Jennifer Stoddard is associate vice president of Member Services at Family First Federal Credit Union. She answers questions about finances and budgeting on the Family First Website (www.familyfirstcu.com) in a section called “Ask Jenn.” Family First has branches in American Fork, Pleasant Grove, Orem, Springville, Payson, Lindon, with a Home and Business Loan Center in Orem. Jenn can be reached at jennifer@familyfirstcu.com or at 801-255-6080.
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