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What Is a Money Market Account?

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Are you ready to put your money to work for you to earn interest, but still have it readily available to access? That’s the basic money market account definition. Money market accounts offer you the option to maintain liquidity, while you watch your money grow.

A mature smiling man in his mid 40's takes a picture with his smart phone of a check or paycheck for digital electronic depositing.
Yellow notepad with pen svg icon Lesson Notes:
  • Money market accounts are a good option if you are looking to earn a higher interest rate but still have access to your money.
  • Money market accounts may come with minimum balance requirements and fees.

How Does a Money Market Account Work?

A money market account is an interest-bearing account you can open at your financial institution. Most banks and credit unions offer a money market account option. These accounts usually pay a higher rate of interest than a basic savings account. Some of these accounts may have extra benefits such as the use of a debit card and check-writing ability.

However, there are some restrictions on money market accounts. You generally have to maintain minimum balances for your money to earn interest. There may also be fees associated with money market accounts that don’t apply to regular checking and savings accounts.

Before you open a money market account, it’s best to do your research to find out if it’s the right product and service for you, or if you’ll be better off with a more traditional type of account or interest-earning vehicle.

Why Not Use Money Market Mutual Funds?

You might be getting advice to put your money into a money market mutual fund for an even higher rate of interest. Mutual funds and deposit accounts have one major difference—whether or not your deposits are insured by the Federal Deposit Insurance Corporation (FDIC), which insures banks, or the National Credit Union Administration (NCUA), which insures credit unions. However, money market mutual funds aren’t insured which means putting your savings at risk.

Money market deposit accounts are included in what is insured by the FDIC or NCUA, for up to $250,000 per depositor per bank or credit union, including checking and savings accounts and secure interest-earning vehicles like certificates of deposit (CDs). Unlike the FDIC, NCUA insurance of $250,000 is dependent upon the number of signers on the account, as well as the beneficiaries.   If you have more than $250,000, you may want to split it between financial institutions for maximum insured protection. 

Money Market Accounts Vs. Other Accounts

Why not just put your money in savings or other high-yield accounts? Here are the reasons why a money market account might be a more attractive solution.

Traditional Saving Accounts

While a traditional savings account and a money market savings account both pay interest, in most cases, a money market savings account will offer a higher interest rate than typical savings accounts, making money market accounts a more attractive option.  Traditional savings accounts only earn interest rates offered by the financial institution itself. Whereas in a money market savings accounts, your financial institution is able to pay a higher interest rate because they place the money into short-term, low-risk investments.  Upon the maturity of these investments, your financial institution will provide you with a portion of the interest that they receive.

Much like a traditional savings account, a money market savings account may include a checking account and debit account making it easy for you to access the funds in your account. Money market savings accounts often come with minimum balance requirements as well.

High-Yield Savings Accounts

A high-yield savings account is a major competitor for a money market account because the rate of interest is often equal to or possibly higher than a money market account. However, in a high-yield savings account you won’t have the flexibility you could get from a money market account through debit cards and transfers. High-yield accounts may also require a high minimum balance, direct deposits and may have a fee for withdrawals.

High-Interest Checking Accounts

Just like a high-yield savings account, a high-interest checking account can have an interest rate that meets or exceeds a money market account. However, there are caps on the amount that can earn interest. A high-interest checking account may also either require a high minimum daily average balance or could impose a cap, over which the high-yield doesn’t apply. It can defeat the purpose of saving up if you don’t earn the high rate on deposits exceeding a certain amount.  

Rewards Checking Accounts

Usually, a rewards checking account is just a regular checking account with a special introductory offer, like airline miles, cashback on purchases, or a signup bonus if you keep the account in good standing and deposit a certain amount of funds in the first 90 days. However, some rewards accounts may offer interest on your balance. In such cases, there may be restrictions similar to those on high-interest checking accounts. 

A money market account can be a great way to help you make more money. Over time, you can grow your wealth and achieve more financial independence.

Want better rates, fewer fees and other benefits? Check out Ent’s money market account.

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