What Is A Money Market Account?

What is a money market account? A money market account is like a checking account and a savings account. Interest is paid on the deposits and customers are allowed a limited number of check-like withdrawals.

A regular savings account is one in which you keep money. This money can be used by the bank for financial reasons such as loans. In return for the use of your money, the bank pays you a certain rate of interest at set times. Basic and passport savings account typically do not earn high rates of interest, but you can access your money at any time without penalties.


If you do not make many withdrawals, maybe three to six a month, and have a high balance, try a money market account. "A money market account is like a checking account and a savings account. Interest is paid on the deposits and customers are allowed a limited number of check-like withdrawals," says Sharon Lee, the Executive Vice President and Director of Client Services of American National Bank, who has thirty years in the banking industry.




It is a savings account and insured by the Federal Deposit Insurance Corporation if you open one at an accredited bank, up to $100,000. A money market account, also called a money market deposit account, gains you a much better rate of interest than a regular passport savings account. One of the main requirements of a money market account is to carry a higher balance than a regular savings account. A money market account lets depository banking institutions compete with money market mutual funds.

You money market account may incur a monthly service charge or a penalty if the amount drops below a pre-determined level. Federal regulations do limit the number of transactions per money to six. Three of these transactions can be by a written check, a bank draft or a debit card. The interest rate on a money market account moves up and down on a daily basis following the market. Know what the minimum balance to open the account is as well as the balance to avoid low balance fees.

There are also high-yield money markets accounts or MMAs. You may have to search online or Internet based banks to find one of these super-charged MMAs. The rates offered can be as high as two or three times the rate of a standard MMA. The online banks can offer these higher rates because they usually do not have standard brick and mortar buildings to maintain.

Watch out for corporations who offer high-yield money market accounts. The risk is higher with a corporate MMA because the FDIC does not insure the money. With a corporation, you are an unsecured creditor and could potentially lose all the money if the company goes bankrupt. Check out Standard and Poor's or another company credit rating service to see what the status is of the corporation's bonds being offered. Triple A is the top rating.

When looking to open a money market account, do not get it confused with a money market fund (MMF). These are entirely different and not FDIC-insured. MMFs are highly regulated and focus on short-term securities such as certificates of deposit (CDs) and U.S. Treasury bills.

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