Money Market Accounts

What is a Money Market Account?

A money market account is an interest-bearing account at a bank or credit union—not to be confused with a money market mutual fund. Sometimes referred to as money market deposit accounts (MMDA), money market accounts (MMA) have some features not found in other types of accounts. 

How does a money market deposit account work? 

Basically, what is happening is the money that you put into the money market account is being used by the bank to make investments such, as loans on homes, cars, even stocks and bonds. However, each month because they are using your money, they are giving you a small amount of interest as payment for using your account.

Most money market accounts pay a higher interest rate than regular passbook savings accounts and often include check writing and debit card privileges. They also come with restrictions that make them less flexible than a regular checking account. They are important for calculating tangible net worth.

You don’t have unlimited access to your savings with an MMDA, but you can traditionally write a certain number of checks each month or even use a debit card to get money out (e.g., up to six times per month). Your account also grows safely if your provider is insured by the FDIC (up to the legal limit). The more money you have in the account the more interest you can earn on the account. In most money market accounts they have tiers you can use as a means to know how much money you will earn.

Pros and Cons of Money Market Accounts

Potential disadvantages include limited transactions, fees, and minimum balance requirements. Here is an overview:

Pros

• • Higher interest rates
  • Insurance protection
  • Check writing privileges
  • Debit cards

Cons

• • Limited transactions
  • Fees
  • Minimum balance requirement