As the world economy has suffered many set backs within past few years, a lot of employers are forced to either reduce the amount of money they match in 401k plans or completely discontinue 401k matching in order to stay afloat and profitable. As this practice became increasingly more popular among businesses, individuals began looking for alternative techniques of saving for their retirement. Although many people chose to put their future retirement savings in general savings accounts, a big majority of people chose a different, safer, and more effective route- a money market account .
A money market account is in essence a savings account that normally offers a significantly higher interest rate than that of an usual savings account. Banks are able to offer higher interests on these types of accounts for multiple reasons. One reason is because of the intended use of the deposited money itself. Banks use the funds in money market accounts to invest in government and corporate securities & subsequently pays the depositor based on the current interest rates within the money market. Additionally, limitations are applied to the accounts which require that a bigger amount of money remain deposited in them than in traditional savings accounts. Banks are also allowed to charge fees if the account has funds withdrawn from it exceeding the alloted amount of times in a given period of time. Although there're more restrictions on a money market account than a conventional savings account, the exponentially higher interest rates it attracts more than enough make up for the limitations.
Another reasons why money market accounts are becoming increasingly popular is due to their relative security in relation to 401k plans that hinge mainly on the success of an individual's employer usually as the funds in the 401k plan are consisted of stock within a given company. Also, unlike a 401k plan, the money in a money market account are insured by the FDIC like a conventional account so there's no risk of completely losing it if a bank closes. Also, the penalties for withdrawing money from a money market account are usually less severe than that of a 401k plan and facilitate a fixed number of withdrawals a month.
When utilizing a money market account, among the most helpful tools an investor can use is that of a money market calculator. A person can analyze their money market account and its respective characteristics like the initial and current deposited amount, the current interest rate, length of expected account duration, annual percentage yield, compounding interest, etc and employ a money market calculator to estimate the estimated value of the account over a given period of time. Utilizing a money market calculator will permit you to effectively manage your account and plan for the future based on the estimated funds available at a future date.
Some online sites offer free
money market calculators for individuals to utilize and these simple tools can successfully assist you plan your future and manage, track, and estimate your expected savings objectives.
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