Maintaining an Edge: Keeping Your Money Market Account Up-to-Date

You've shopped around and chosen a money market account with care--good bank, competitive interest rate, reasonable fees. Nice job--for now. But how to you ensure that your money market account keeps its edge?

Money market accounts perform double duty--they are supposed to earn a decent interest rate while providing a reasonable degree of flexibility. To monitor whether your money market account has maintained its advantage, you have to consider both how its interest rate has held up relative to the competition, and how your usage meshes with the fees and restrictions on the account.

The Volatile Interest Rate Situation

Monitoring interest rates is especially challenging right now, because the economic environment is creating cross-currents that have pushed interest rates back and forth. Looking at the bond market as a representative of interest rate activity, there was a sustained rise in rates from early July to early August, coinciding with a stock market rally and general optimism about the end of the recession. Then, interest rates fell sharply during the second week of August, as disappointing reports on home foreclosures and job losses dampened some of that optimism.

Different banks will react to changes in market rates with different speed. Also, banks have other business considerations in setting rates. So, having an advantage today is no guarantee you'll have an advantage tomorrow. Further complicating things is the fact that in such a changeable environment, just because your money market rate holds steady doesn't mean the rest of the market isn't moving higher.

Other Money Market Variables

What about those other variables that affect the attractiveness of a money market account? They can easily affect you as much if not more than any advantage or disadvantage in money market rates.

One issue is fees. Many banks are raising fees these days. Also, money market fee schedules are structured to discourage heavy transaction activity, so if your habits have changed, it may be affecting the cost of your money market account.

Finally, though the banking system has stabilized in recent months, individual banks may still be subject to sudden difficulties, so that's another factor to monitor.

Keeping Your Money Market Edge

You can account for all these variables by following a checklist for keeping up with your money market account:

• Is your rate still competitive? MoneyRates.com regularly lists the average money market rate on its home page. You should regularly compare the rate you are getting to this average. You may not want to change every time you slip a little below the average, but if your money market account is consistently lagging, then it is costing you money.
• Are your fees in line? Add up the fees on each statement to make sure there are no surprises. You want to watch both whether your bank has raised fees, and whether your activity has begun to incur excessive fees.
• Is this the best deal available? Check with your bank periodically to make sure you are getting their best deal on money market rates and fees. Be aware of any deposit balance break-points that might entitle you to preferred treatment.
• Is your bank healthy? Search for news about your bank now and then to make sure there aren't any developments you should know about.

If you like your current money situation, that's great. You've done a good job selecting your depositor. But it never hurts to keep your bank on its toes and knowing you've got the best available feels good too.

Source: Yahoo! Finance - http://finance.yahoo.com/echarts?s=%5ETNX#symbol=%5ETNX;range=3m