What Is A Money Market Account?

The easiest answer to the question of what is a Money Market Account is that it is a cross between a savings account and a checking account. With a minimum balance requirement, these accounts pay interest like a savings account, but allow the owner the flexibility of writing a check or using a debit card for purchases. However, there are usually tighter restrictions on a Money Market Account than on standard checking and savings accounts, although the benefits are so much greater.

Money market accounts or MMAs, as they are called, pay a higher interest rate than standard savings accounts, but require the owner to maintain a higher balance in the account. This balance can be as low as $1,000 or as much as $25,000. While the interest rate is higher than that of a standard savings account, it is not as high as a Certificate of Deposit; however, the lower interest rate is offset by the liquidity of the funds involved.

Another advantage to the MMA is the ability to make a limited number of withdrawals each month off the account, in the form of writing a check, or using a debit card. These withdrawals are usually more than can be made from a standard savings account, but less than the owner can make with a regular checking account. This makes Money market accounts less likely to be used for everyday purchases that might bring the balance under the minimum requirements. The owner should realize, however, that if the balance does drop below the minimum, the interest earned on the account may decrease to that of a standard savings account or can disappear altogether.

One thing to remember is that MMAs are not Money Market Funds. They are specialized savings accounts, and because of this are fully insured by the FDIC for banks, and the NCUSIF for credit unions. Because of this, they are an excellent place for someone who is concerned about the volatility of the stock market to place his money, and are often considered the safe part of a person’s portfolio. Money Market Funds are a type of mutual fund and, as such, are not insured against bank loss. It must be remembered, though, that each bank will have its own requirements for the account, whether a minimum balance or minimum monthly transactions or direct deposit of payroll checks. The person interested in a Money market accounts should contact his financial institution for a more detailed explanation of their standards and requirements.