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Understand Money Market Savings Accounts

|Aug 14|magazine9 min read

The August edition of the Business Review Canada is now live!

By: Aimee Claire

With the global economy in a continuing state of uncertainty, individuals and businesses can spend large chunks of valuable time looking around for the best place to earn decent rates of interest on savings and capital. In such generally unstable fiscal conditions, the security of the deposit is another key consideration. One investment possibility that checks the boxes for both good income and capital security is a money markets savings account.

What is a money market savings account?

A money markets savings account is similar to other fixed-term deposit accounts. However, it has an advantage over flexible rate accounts and checking accounts in that a deposit is placed in the account for a specified period of time, with a return based on a guaranteed rate of interest. This means that there is a sound basis for financial planning, as the return on investment is a known factor from the outset. In addition, money market savings accounts are generally guaranteed at national level, which means there is minimum risk on the investment capital. Insurance is provided by a federal agency, so even if the financial institution managing the account goes out of business, the capital in the individual money market savings account is safe.

How does a money market savings account work?

Money market savings accounts work on the basis that the capital paid into the account is used, in turn, by the bank or credit union to make larger-scale loans and investments. The fixed-term nature of the account guarantees the capital for this to happen and the return on investment gained by such large capital loans is then fed back to the customer in the form of interest. On the downside, it also means that there may be penalties for withdrawing funds before the fixed-term period of investment expires.

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Why is it important to choose the right account?

As with any other financial decision, it is important to be sure that a savings account is suitable for the needs of the investor. Interest rates vary from account to account, not only on the basis of the amount of capital invested and the length of the investment, but also from bank to bank. For up to the minute information on CD rates an online money market savings graph should be consulted. The information provided will help to indicate clearly where the most profitable certificate of deposit accounts can be found. It should also be noted that differences in penalties for early withdrawal of funds apply, depending on the bank selected.

How are money market savings accounts good for businesses?

Money market savings accounts are best used when a fixed amount of capital is available over a certain time frame. This suits businesses with foreseeable expenses and liquid assets in the bank. In such conditions, a business can usually find better than average rates of return in a money market account, especially if large amounts of capital are involved. Similarly, the fixed rate of interest offered by these accounts means that financial planning is made easier for the business making the investment.