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Safety, Rates Make Money Market Accounts a Strong Choice

In the last 16 months, the average interest rate on money market accounts (MMAs) has dropped from more than 3% down to its current average of 0.59%, according to BankingMyWay's Rate Index. But that hasn't scared away depositors.

In fact, even as average rates on MMAs declined, the amount of cash deposited in MMAs insured by the Federal Deposit Insurance Corporation rose from $2.3 billion in the third quarter of 2007 to $2.5 billion in the third quarter of 2008.

The reasons? Safety, liquidity and better rates than savings accounts all make MMAs attractive in these uncertain times.

Investors chasing big returns can end up losing money when stocks plummet - or even get rooked by fraudsters like Bernie Madoff. Money market accounts offered by FDIC-insured institutions are guaranteed up to $250,000 per accountholder per institution, so you won't lose a dime, even in the event that the bank fails.

While helping to keep your money safe, MMAs also offer a little extra interest as compared to averages of 0.28% and 0.17% on savings and checking accounts, respectively. That extra interest is important because bank failure isn't the only threat to your money: over the long-term, inflation can eat away at your money's buying power. And though inflation has been relatively flat for the past year, it was up 0.3% in January as measured by the Bureau of Labor Statistics' Consumer Price Index.'s Inflation calculator can show you the impact inflation has on your savings.
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