The secret to compounding interest is to get your money into savings or an investment as soon as possible since the longer money “compounds”, the more you end up with at the end. This is why people who start saving even a little money at a time in their younger years will almost always have more money than someone who waits until they’re fully established in their career to begin saving. The younger person’s money has more time to compound and grow than the older investor.
Beginning and experienced investors alike are a little hesitant to invest money while the economy continues to struggle for fear that they’ll lose their investment. Money market deposit accounts are a terrific option for saving and growing your money in a risk-free account.
Money market deposit accounts are similar to your every day savings account in that they are FDIC insured. Just like your savings account, you’re insured up to the stated limits (usually $100,000 per investor) and the insurance eliminates your risk of losing money even if the bank goes out of business.
There are some differences between money market deposit accounts , online savings account rates, and savings accounts that you should understand before opening an account. The primary differences include:
· needing a higher initial deposit to open a money market deposit account than your typical savings account
· receiving higher interest rates with money market accounts in comparison to a savings account
· having a limited number of fee-free withdrawals allowed from a money market account (usually three to six transactions per month allowed, after which you pay fees to withdraw money)
· possibly needing to maintain a minimum monthly balance to avoid fees on money saved in a money market
In addition to having the security of saving money in an FDIC insured account, the biggest benefit to saving with money market deposit accounts is that you can find accounts that compound interest daily. The more frequently an account compounds interest, the faster and larger your money will grow. If you make consistent deposits into a daily-compounding account, you’ll see your money growing much faster than any other type of account that does not compound daily. Each time you make a deposit, the interest earned is based on the new amount. The interest earned is applied to your balance, so that the following day you earn interest on the total balance (including the previous day’s interest).
If you’re looking for a place to save and grow your money where it can’t be lost due to the economic conditions, a money market deposit account is a great option.
Trisha Wagner is a freelance writer for DepositAccounts.com, where you can compare rates of checking accounts from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and savings accounts.
