Learn what is money market account definition and of its various features and benefits enjoyed by customers.
What is Money Market Account Definition
These special type of accounts work similarly to a traditional savings account. The accountholder deposits money in the account, and the financial institution will invest the funds on the markets. Interest is paid to the customer when profits are earned on their money which is invested in the market. Since a customer deposits large amounts, interest rates are also higher.
Keep in mind, there may be a minimum monthly balance requirement for these types of accounts, as well as maintenance fees. Any time you are considering opening a new type of bank account, it is important to consider any potential downsides. A money market account generally requires a higher minimum deposit, both offer comparable rates, and both typically have similar limits on the number of withdrawals or transfers that are allowed without penalty. There are also a few key differences between money market accounts and traditional savings accounts, including higher minimum deposit requirements and better interest rates for MMAs. You need to know these account features to make the right choice.
Features and Benefits of the Account
A Money Market Account (MMA) function is like a checking account but has some attractive features. However, banks place limits on how many checks the customer may write on the account. The Federal Deposit Insurance Corp. (FDIC) insures these types of accounts. These accounts are widely available today, with many banks and financial institutions offering this service.
The bank limits the amount that a customer can withdraw within a certain time frame. So, one could say this bank account type is more liquid than bonds, but less liquid than checking accounts. The customer is allowed to write checks against the account balance up to the limit of 6 checks a month.
Interest earned on the MMA is taxed like savings accounts and checking accounts. The account holder does not need to purchase shares of stock in this type of account.
Investing of Funds
Banks offering these accounts have taken a lower-risk approach to investing. They select safer investment options, investing in commercial paper, government securities, and certificates of deposit. There is one kind of mutual fund called the money market mutual fund in which an investor may buy shares.
With this type of account you will earn interest on funds that you deposit, just like a savings account in banks or credit unions. Many banks also offer high-yield checking accounts, or checking accounts with high interest rates, which may pay better rates than money market accounts, but have more restrictions. If you want flexibility to write more checks or make more online bill payments, a high-interest checking account may be worth considering.
Account holders can write checks and make withdrawals online, through mobile apps, or with their ATM card. If you need to dip into savings for any reason, you can do so through electronic transfers, checks, or an ATM withdrawal, depending on which options your bank offers.
While some money market deposit accounts can offer higher interest rates to depositors, others may offer rates that are similar to the APR that you will get with a standard savings account. Otherwise, a savings account with a comparable rate of interest will perform just as well — and a little less liquidity may keep you from drawing funds down when you do not actually need them.
Just like with savings accounts, money in a money market account is insured, so long as you are doing business with a bank insured by the Federal Deposit Insurance Corporation, or with a credit union insured by the National Credit Union Association, an agency of the Federal Deposit Insurance Corporation. As long as you are banking with an institution insured by the Federal Deposit Insurance Corporation (or a credit union insured by the NCUA), balances in your money market account, combined with balances of any other bank accounts at the same institution, are insured up to $250,000 per account for an individual, or $500,000 per joint account ($250,000 per account holder). Each account type is insured up to $250,000 per depositor, each at a covered financial institution.