How Does a Jumbo Money Market Work?
- A money market account (MMA) is a bank account that invests in short-term and very low-risk government and corporate securities (like bonds and other debt notes). The interest rates paid on MMAs depend on the overall macroeconomic situation (low- or high-interest-rate conditions), but are usually at least a little bit more than passbook savings rates.
- A jumbo money market account is an MMA with a larger minimum balance, but it also pays a slightly higher interest rate. Almost all financial institutions that offer regular MMAs also offer jumbo MMAs.
- A money market fund (MMF) is closely related to an MMA and pays very similar interest rates, but it is a mutual fund rather than a bank account and is thus not federally insured. MMFs also invest in extremely low-risk securities and are a very safe investment. In high-interest-rate macroeconomic conditions, MMFs can pay rates as much as a point or two higher than MMAs, but in times like today's general low-interest-rate conditions, the rates are almost identical.
Most MMAs are, however, limited to just six transactions a year, and MMFs generally do not have limits on the number of transactions (although there might be transaction or withdrawal fees for withdrawing funds). - Bankrate.com's website offers a real-time updated nationwide chart with the jumbo MMAs paying the highest interest rates (see Reference section).
- If you are looking for a federally insured, safe, stable, and liquid investment, and are willing to settle for a relatively low interest rate, then a jumbo money market account might be an ideal investment for you. There are, of course, a number ways to get a much higher return on your money if you are willing to take a little more risk or are willing to keep your money tied up for a longer period of time.