Inflation has many people spending their every last dollar on essential expenses like food, car payments, and rent. But if you’re sitting on some extra cash, you may be inclined to try to grow it into a larger sum.
You could open a certificate of deposit (CD) or invest your money in stocks and other such assets. But you may want to consider a money market account (MMA) instead.
An MMA is an interest-bearing account that most banks and credit unions offer. MMAs basically combine the benefits of a savings account and checking account into one so you can earn interest on your money, but also, in many cases, access funds in your account by swiping a debit card or writing checks. You may especially want to consider an MMA in 2024 for these key reasons.
1. You might earn a nice interest rate on your money
The Federal Reserve spent much of 2022 and 2023 jacking up interest rates in an effort to slow the pace of inflation. As a result, borrowing has become more expensive for consumers across the board, which clearly isn’t great.
The upside, however, is that savings accounts, CDs, and MMAs are paying generously these days. So now’s a good time to take advantage of the current interest rate environment.
We don’t know exactly when the Fed will start to cut rates. But there’s reason to believe that’s in store at some point in 2024, especially if inflation continues to cool.
2. You don’t have to make a big commitment
When you open a CD, you’re committing to keeping your money in the bank for a specific period. With an MMA, you’re not making that same commitment.
The funds in your MMA are not restricted. You can take a withdrawal as needed should an emergency expense arise that you’re not prepared for, like a home or vehicle repair.
What’s more, while the U.S. economy is in a decent place, some financial experts are still warning of a near-term recession. With an MMA, you get access to your money so that if you were to lose your job, you’d be able to take withdrawals as needed in the absence of a paycheck.
3. You don’t run the risk of losing principal
When you invest money in a brokerage account, you have an opportunity to score a really sweet return on it. But you also run the risk of losing money should the stock market take a turn for the worse. You may not want to run that risk given the aforementioned economic uncertainty.
With an MMA, your funds are protected as long as you open one at an institution that’s FDIC-insured and your deposit doesn’t exceed $250,000 ($500,000 for joint accounts). You can consult the BankFind Suite tool to check on various banks’ FDIC status.
Is an MMA right for you?
There are some drawbacks to opening an MMA that you should know about. For one thing, these accounts commonly require a higher minimum deposit than typical savings accounts. And you might face a limit on the number of transactions you can make in a given month.
Also, right now, CD rates are up due to the Fed’s numerous rate hikes. But if rate cuts come down the pike, CDs might start to pay less. So you may want to opt for a CD over an MMA right now to lock in a better rate while you can — unless, of course, you’re worried about committing to a given CD’s term.
But otherwise, it certainly pays to consider an MMA for your money this year. Just make sure to read the rules associated with your account carefully before moving forward.
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