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What are the pros and cons of a money market deposit account? Does a money market deposit aco**** accrue interest on the principal amount that you put in on a daily basis? Can you always deposit more money into the money market deposit account? What questions should I ask the bank institution before I open up an account? Can someone tell an in-depth information about compounded interest because I just know that it is interest growing off previous interest, but I need an example of like say $2,000 USD in a newly-established account so how does compounded interest come into play, is it monthly or quarterly?
Money market are mutual funds. You buy shares that are $1 per share and never fluctuate. Every month, you'll earn a dividend that will be reinvested into the account. Essentially, this is just like interest.
For example, let's say you have $100 to put in a money market. You would then buy 100 shares of $1 each in a money market account. Lets say it earns 1% per month (Usually money markets are around 3%-5% a year, this is for simplicity sake). After the first month, you'll earn a $1 dividend that will be reinvested into the fund. So after the first month, you'll have $101. The next month, you'll earn $3.03 (3% of $101). This is compounding interest since your interest increases. Of course, this assumes the 1% that you earn per month is constant, which is not the case in money market mutual funds. They go up and down since a lot of funds invest in treasuries and some bonds. Overall, the interest rates are usually higher than checking accounts because there is a risk since it is not FDIC insured, which means, there is a possibility that the fund can go below $1 a share, which means you will lose money. However, it has never happened and is considered the safest of all mutual funds. It is also very liquid, which means you can pull it out anytime you want and some brokerages even offer check writing privileges.
Pros:
Usually earns more money than regular bank checking/savings account.
Thank you for the advice, but I wasn't talking about money market mutual funds, but a money market deposit account which I know that it is a high interest saving account!
Because of the drop in interest rates no money market is paying high interest. I use a money market fund as a plce to keep my emergency money. For higher, safe interest rate buy I bonds. Vanguard & Fidelity have the best money market mutual funds.
The pros of a MMA are that they generally pay more interest than a regular ol' savings account. Interest usually compounds daily (sometimes monthly) and is usually credited monthly, depending on the bank. The cons--if you can call them cons--are that you're limited to 6 withdrawals per month and many banks have minimum deposit/balance requirements for getting the higher interest rates.
If I were opening an account, I'd ask:
1) How often is interest compounded and credited?
2) Is there checkwriting?
3) What minimum balances are required for the different interest rates?
Here's a page from Bankrate.com that lists various MMAs and gives you an idea of what to look for:
What are the pros and cons of a money market deposit account? Does a money market deposit aco**** accrue interest on the principal amount that you put in on a daily basis? Can you always deposit more money into the money market deposit account? What questions should I ask the bank institution before I open up an account? Can someone tell an in-depth information about compounded interest because I just know that it is interest growing off previous interest, but I need an example of like say $2,000 USD in a newly-established account so how does compounded interest come into play, is it monthly or quarterly?
At what banks are paying, dont owrry about "compounded interest".. Inflation is eating away more then compounded interest is acruing..
He said I-bonds. Now is not a good time to buy I-bonds, IMO. As of this month, the fixed rate, which lasts the life of the bond, is 0%! There's also an inflation-adjusted rate, which is adjusted every 6 months. That one will ensure that your real return won't be negative, anyway. Now there's an investment to get excited about, eh?
I was a big fan of I-bonds a few years ago. When I bought mine, the fixed rate was 3%. Those babies are currently paying 7.84%. Not bad for a risk-free investment, especially these days.
Is still a good idea to open a Vanguard Star Fund because people on this forum told me to get at least $1,000 and open this fund?! Is anyone willing to help me with the jargon at the Vanguard's Star Fund webpage? I'm a scared 18 years old boy, lol! P.S. I will get a job and can you put the Star Fund into a ROTH IRA?
You can stick a mutual fund INSIDE of your Roth IRA. A Roth isn't an investment in and of itself. It's just a vehicle for which to PLACE investments in order to gain favorable tax treatment. If you want the Star Fund, open a Roth and purchase the fund within the Roth.
And yes, I like the Star Fund, particularly for people like you who are new to investing. If you have questions on the Vanguard jargon, feel free to PM me or ask 'em here.
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