What Is A Money Market Account?
What is a money market account? A money market account is an interest-bearing account designed to provide significantly higher returns compared to the standard savings account, while also making it possible for the account holders to access and transact with such account like it were a checking account. Simply put, a money market account was designed to offer high net worth individuals the best of both worlds but not without its own sets of restrictions and drawbacks.
Banks developed the concept of money market accounts as a response to the high-yield but liquid financial products offered by other financial institutions. The goal was to was to steer members away from those financial products by offering high interests rates, higher than what was typically attainable with savings accounts while allowing members access to their accounts. Banks are able to offer such high-interest rates because they are allowed to invest such funds in a variety of options and low-risk investments such as government securities and certificate of deposits which was not possible with the traditional savings and checking accounts. Typically, these returns are paid weekly, monthly or quarterly depending on the bank.
What is a Money Market Account and How Does It Work?
A money market account works similarly to a savings account but requires a higher minimum balance which ranges from a few hundred to several thousands of dollars depending on the bank. As with savings accounts, they are also restricted to not more than six transactions a month after which the bank would charge a fee or change the status of the account to a non-interest bearing account. This restriction makes it more liquid than bonds but less accessible when compared to a checking account. Many MMAs also require the account holder to maintain a daily balance to continually receive a higher interest rate.
Accessing a Money Market Account
MMA account holders have a variety of ways through which they can access their accounts; they have access to facilities such as ATMs, they are also able to perform transfers and do online banking. An MMA account also comes with the ability to write checks and access funds using a debit card. The earning potential of the money market account lies between a savings account and a certificate of deposit (CD).
The MMA is insured by Federal Deposit Insurance Corporation (FDIC) to the tune of $250,000 per account holder. This makes the MMA popular with seasoned and casual investors as it protects them against sudden losses. The MMA is advisable for individuals who tend to keep large amounts of money in their checking account. They are not the best accounts for regular day to day spendings or transactions as users tend to reach the transaction limit rather quickly but they offer highly attractive interests on large deposits which serve as a proper incentive to save up for emergencies, tuition, and taxes.
You can use this link to calculate the returns obtainable by fixing a designated amount of money in a money market account.