A traditional money market account is simply a bank deposit account, which earns interest at the prevailing interest rates in the bank’s money markets. In recent times, the banks have opened up their money markets to the general public who now have the opportunity to earn interest from the money market and use this money for investments. Some people are attracted by the prospect of earning money in the interest rates charged. Others do it because they think they will save money through the money markets if they just put their money in a bank account.
There are two types of traditional bank deposits: a checking and a cash account. Checking accounts have a minimum balance required by law for them to be allowed to open a direct deposit. If you are a citizen of the United States, you can open a regular checking account with a bank. The bank will give you a debit card that you use to make purchases with your regular banking account. You can also have a line of credit available in your checking account that is subject to a credit limit.
Cash accounts are the preferred method for saving and investing money today. Most of us have some kind of cash account where we have money in savings. These are either checking or savings accounts. In most cases, these are not interest bearing accounts. Instead, they are meant for short term investment and for taking care of day to day expenses. This is different from checking accounts which are considered as long term investments. When money grows in cash accounts, the interest earned is tax deferred.
Traditional checking accounts are FDIC insured, which means that there is no limit to the amount you can deposit in these accounts. These account holders also enjoy the advantage of not being required to produce documentation for identification when you open an account. It is important that the cash balances on your checking accounts are maintained at a minimum level so that they are not subjected to overdraft fees and penalties.
With traditional banking, you may be required to pay high charges on account opening or you may even be charged an annual membership fee that comes with high charges. You may be required to open an account from multiple financial institutions so that you can earn interest on all the transactions you make. This can cost you several hundred dollars per year.
When you have a traditional account, your balance may increase over time as you may make transactions with the account. You may not know if your bank allows you to transfer your balance to another institution. This can result in higher interest charges on that account. This is the reason why you may want to go with a Money Market account because you can choose from many banks that offer competitive rates.