Money Market Account Definition and How it Works

Learn what is money market account definition and how it works to produce the desired results for the bank and its customers today.

What is Money Market Account Definition

How it works

These accounts function similar to traditional savings account. The account holder deposits money into the account and the financial institution will invest the funds in the market. The interest is given to the client when profit is earned from his money that is invested in the market. As the customer deposits larger amount, the rate of interest is higher too.

A feature of the Money Market Account (MMA) is similar to a checking account. Banks however set limits on the number of checks the customers can write on the accounts. The Federal Deposit Insurance Corporation (FDIC) insure this type of account. These accounts are widely available today as many banks and financial institutions offer the service. The banks restrict the number of withdrawals by the customer over a given period of time. Thus, you can say that this bank account type is more liquid than bonds but less liquid than a checking account. The client is allowed to write checks on the account balance to a limit of only 6 checks per month. The interest earned on a MMA is taxable similar to savings and checking accounts. The account holders do not have to buy shares in this type of account.

The banks offering such accounts take a low risk approach when making investments. They choose safer investment options by investing in commercial papers, government securities and certificates of deposits. There is a type of mutual fund called the money market mutual fund where the investors can purchase shares.

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