Money Market Account Calculator
Table of contents
What is the money market account?Where does the higher money market account rates come from?Pros and cons of an MMA accountHow does money market work? - exampleRelated calculatorsThe money market account calculator helps you find the return you will get from keeping the money in an MMA account. A money market account is something in between a typical investment and a bank account. Money market account interest rates are typically bigger than the ones from savings accounts and gives you the possibility to use the money collected on the account more frequently.
So how do they work? What is the money market account, and does it have any disadvantages? You will find out if you read on.
What is the money market account?
At first sight, the MMA account is an upgraded version of a typical savings account. You may use it daily as it lets you use a debit card and write checks. Additionally, the money market account rates are usually higher. However, this is possible only because of a few additional restrictions. It makes them a little bit less flexible than the regular account.
Where does the higher money market account rates come from?
You may wonder how it is possible to get higher interest rates and still have almost all regular account opportunities. The reason hides in the name. The cash you put in the MMA account is invested in the money market. It means that the bank is investing it in low-risk short term securities like CDs (certificates of deposit - described further in the CD calculator), government bonds, or commercial papers. This type of investing is not possible for a savings account.
Pros and cons of an MMA account
Advantages:
- The Federal Deposit Insurance Corporation secures your money market account up to the value of $250,000.
- Money market account rates are slightly higher compared to a savings account.
- An MMA account gives you access to debit card.
- The account provides the limited possibility of check writing.
Disadvantages:
- Number of the transaction is limited.
- Users have to pay additional fees.
- The requirement for minimum balance is sometimes required and forces you to keep the balance at some defined level.
How does money market work? - example
Imagine that you have $200,000 in your money market account and decided to put extra $1,000 each month. Your expected return is 0.5%. In just two years of such investment, the money market account calculator will present you the result of $226,135.01 - that is the value of your portfolio. From that amount, $224,000 is your input and the rest, $2,135.01, is the accumulated interest.
Think about all the money market restrictions and compare your current interest rates with those you can get from the MMA account. Maybe it is a good way to improve your budget!