GET THE BEST MONEY MARKET INTEREST RATES AT CREDIT UNIONS
One place most people overlook for their financial and banking needs are credit unions. Many credit unions allow members who are residents of the state and you don’t need to be an employee of the company they are associated with. This may not always be the case but it is worth checking into to see if a credit union near you is a better banking option than a bank itself.
Credit unions are often able to give better money market interest rates because they are a not for profit institution. You can get higher interest rates on CD’s, money markets, and savings accounts as well as lower rates for loans and mortgages. Again, this is because credit unions are not for profit like a bank is.
NCUA which stands for the National Credit Union Administration is the government branch which oversees credit unions and insures your deposits. If the credit union you choose is part of NCUA, your money will be insured up to $250,000 through 2013 just like it would be at a bank with FDIC.
With money market interest rates being so low, any improvement over what you can get at a bank is worth looking into. Some credit union interest rates can be a whole 50% better than what you are offered now through a bank which is a signigicant percentage. If you have money put aside that is earning next to nothing, look into the best interest rates offered by some of your local credit unions and you might be tempted to move accounts!
STOCK INVESTORS HAVE CASH IN MONEY MARKET ACCOUNTS
If you have money in the stock market, you probably have a stock broker account. It is rare that all your money will be invested in stocks at the same time and there will usually be a cash balance in your account. This cash balance, rather than sit there and earn nothing is usually swept into a money market account.
Money market interest is not very high because you can take your money out at any time. Unlike certificate of deposits where the money is locked up for a specific period of time. cash in your money market account is always available to you. For that convenience of immediate liquidity, you will receive a lower interest rate than other investments. However, the beauty of any money market account is that it is at least earning something while remaining available at all times.
You don’t have to own stocks or have a broker to have a money market account. Most any bank, credit union, or other financial institution should have one for you to put your money in. If you have money that is on hold and put aside for buying a house or some other big purchase, money market accounts are typically where people would keep that money. They usually pay more than the very low interest paid by checking accounts and they give you much the same liquidity.
Money market interest that you will be paid depends on how much you have invested. The more you have to put in the account, the higher the interest rate you will get. This is part of the reason that money market interest accounts are sometimes thought of to be only for the rich. That is not the case though, as anyone with money can use them.
MONEY MARKET INTEREST COMPOUNDS DAILY
Most money market interest rates compound daily and this is one of the best advantages of using a money market account. One of the things you want to get with any type of savings is interest that compounds. Compounding interest is interest you earn on interest that has already been paid to you. For example, if you invest $1000 and earn $5.00 in interest, the next cycle you will then be earning interest on the full amount of $1,005.00.
One of the important things to consider is how often the interest compounds. This means that some interest for some kind of investment vehicles compounds every day while others compound every month or quarter. Daily compounding interest is by far the best kind as it will be added to your initial deposit every day and every day the amount you will be earning interest on will be greater.
Any investment that gives you compounding interest grows much faster than one that doesn’t assuming they both give you the same rate. On the surface this difference may not seem like a lot but if you calculate the math over a long period of time, the amount you will earn with compounding interest will be significantly greater.
Another advantage of most money market accounts is that the more money you have in one, the higher interest rate it will earn. This does not typically happen with savings account or other types of account that you will find with at your bank or stock broker. Money market interest rates may be low right now but the fact that they give you compounding interest and higher rates with higher balances help offset the low rates.
As always please consult and ask questions wherever you are thinking about investing money. No two banks have the exact same policies and they all have different interest rates and conditions. Not all money market accounts pay compound interest so please specifically ask about that before you decide to invest.
FDIC EXTENDS $250,000 INSURANCE THROUGH 2013
This post is a little late but the good news is that the insurance the FDIC guarantees per person per account at most banks has been extended to the 12/31/2013. You can read about it here at the FDIC website.
If you have any doubts whether your bank is part of the FDIC program you should take the time to go in and ask. There should be a sign on the wall somewhere of something on the teller counters saying that they are FDIC insured. If still in doubt, please ask one of the people sitting at the desks and they should be able to give you a printout with all the rules and regulations.
Another thing you might want to ask about is exactly what the $250,000 limit applies to if you are married or if you have more than one account. This is a point of some confusion even among professionals. I have personally gone into two different banks and gotten two different answers. The rules seem to state that the insurance is “per person” and not per account but put on the spot, even the people in the two banks weren’t 100% sure.
The more questions you ask about the FDIC insurance extension, the more you will be able to understand and you will go away feeling better about it. Remember, it is YOUR money you are investing so don’t be hesitant to ask questions.
FDIC $250,000.00 INSURANCE ENDS IN 2009
Update: The FDIC $250,000 guarantee been extended to the end of 2013 and you can read about it here.
It is important to note that the FDIC insurance coverage of individual accounts was raised from $100,000 to $250,000 in October 2008. However, that will expire on December 31st, 2009 which is just months away now.
By raising the amount that is insured through FDIC, it allow people to keep more of their money in one institution. At the old amount of $100,000.00, someone with a million invested in money market accounts or bank CD’s would have to have the money in TEN different banks. Obviously, this is extremely inconvenient.
Anyone looking to find the best money maket interest rates could only invest $100,000 safely at the old amount. Now with it raised to $250,000 you can get more of your money invested at the best rate you can find.
Additionally, by raising the amount insured, it meant less turmoil in the banks and institutions that give out CD’s and hold money. Now with the insurance amount going back down to $100,000 in 2010, it means that you must make plans to move your money and make sure it is all insured.
Of course Congress could vote to extend the $250,000 and that would be ideal. It is silly to have the amount at $100,000 especially as that amount isn’t really that much now days due to inflation. Investing your money safely is a priority now with the economic turmoil and it is important to make sure all your money is covered by FDIC insurance.