You have $50,000 on your regular savings account which has been sitting there for several months. You’re a responsible person and are diligently setting aside portions of your earnings for your future. But due to the recent Wall Street fallout, you want to protect yourself from greedy CEOs. You’ve taken the conservative stance and are staying out of the stock market. But between the relative risk-free regular savings account you keep your money in and the high-risk investments in stock markets, wouldn’t it be great if you found something that stays relatively risk-free but yields more than where you currently have your money?

A money market savings account is actually an investment account where you are an investor in the money market. The money market is segment of the financial market where short-term, highly liquid financial instruments are traded. Basically, when you open a money market account with a bank, you are contributing to a mutual fund kept in a portfolio of short-term investments managed by a fund manager. Unlike trading in the securities and stock market, you’re not the one directly investing; the bank’s fund managers do it for you.

Why not let the guy in the video below explain to you what this high yield money market savings account is.

A money market investment portfolio may include any of the following:

• Treasury bills, which are debt instruments issued by US Treasury; the debtor in this case is the US Federal government.
• Commercial papers are short-term, unsecured debts issued by a corporation to meet short-term capital needs; the debtor in this case is the issuing corporation.
• Certificates of deposits (CDs) are bank promissory notes; the issuing bank is your debtor.
• There are other types of financial instruments traded in the money market. Anything that is used in short-term loans between governments, banks, commercial corporations and other financial institutions may be traded in the money market.
  

Money market accounts can be opened with either banks or credit unions. These accounts pay you dividends, i.e., your share of the interest earned on these investments, at relatively higher rates than regular savings or checking accounts, sometimes, twice more. The key feature of interest on money market accounts is that it is compounded. This means the daily interest you earn is reinvested to earn more interest. At the end of the month, you’re paid in full for the total interest earned for that month.

Minimum investments or placements for a money market account are relatively higher, too. Just like regular savings account, money market accounts includes the ability to write checks and the your money is likewise insured by the Federal Deposit Insurance Corporation (FDIC) for accounts with banks, or the National Credit Union Association (NCUA) for accounts with credit unions.

This is pretty straightforward and works very much like managing your typical savings/checking account. Upon opening a money market account, you keep track of your account movements using the register, which is similar to a check register. At the end of the month, you received a bank statement showing movements to your account during the period specified. To make sure you know what’s going on in your account and to be aware of the charges and earnings, reconcile your register with the bank statement. You may find you’ve missed writing down a transaction or two. When there’s a difference between your records and the bank’s, it’s very likely the mistake is yours; banks have automated systems and are rarely, if at all, at fault.

Unlike regular savings and checking accounts that don’t charge transaction or service fees, money market accounts have attendant charges and service fees, usually if you exceed set limits. Besides checking interest rates, mind your bank’s fee structure to avoid the charges. You may also want to compare fee rates and structures when shopping for banks or credit unions. These rates can vary from one bank or credit union to another.

Money market accounts works for conservative investors who want to earn more than a typical savings account. And because it’s insured, it’s virtually risk-free. As such, it’s a smart way to park cash between investments. Besides yielding better interests than typical savings, it allows you the flexibility of issuing checks.

That being said, there are however, several disadvantages to a money market savings account.

First, for the same amount, it yields you far lower interest rates than some types of mutual funds, which is also a relatively safe investment type. You may want to look into this option before deciding on a money market account to be sure it is indeed the type of investment that satisfies your goals and meets your needs.

Second, although the account allows you to issue checks against the account, there’s a specific limit to the number of checks you can issue against the account. Usually, check issuances allowed against money market accounts range for three to six a month.

Third, money market accounts usually require a minimum maintaining balance, typically anywhere from $1000-$50,000. Although some online providers have no minimum balance requirement, failure to maintain this required balance will incur charges. If you continue incurring charges on your account, you’d likely lose more in charges than you’d earn in interest.

Obviously, a money market account can’t earn you the millions investments in stocks and debt securities can, over the same period of time. However, if you make regular deposits on your money market savings account, your portfolio grows so does your earnings.

The account provides you with a steady source of interest income and you’re sure that at the end of the day, your money is still yours. And because it’s a very liquid type of investment, it’s easy to move funds from a money market account into other types of account. If at some point in the future you find renewed confidence in the high-stakes financial markets, you can always move funds from your money market savings account. If you’re among the many who swore off gambling in the stock market, a money market savings account could suit your needs just fine.

Watch the video below to get more advice on investing with a money market savings account.