How Does A Money Market Account Work? – Importance, Benefits, And More

When there is high interest in the market, it is important for you to evaluate your returns from your bank accounts. With a Money Market Account, you will get a higher rate of interest than a normal savings bank account (containing a passbook). However, in money market accounts, you can also get the option of check-writing and debit card privileges. Hence, to learn how a money market account works read on through to the end of the article.

With money market accounts, there are various restrictions as well, which makes such accounts less flexible than a regular checking account. In this article, you will also learn about money market accounts in general and how they work. Furthermore, we will discuss the importance and benefits of money market accounts as well. Finally, you will get a glimpse of the major pros and cons of money market accounts.

Money Market Account Definition ? What Is A Money Market Account?

According to the Forbes Advisor,

?A money market account is a type of account that tends to offer a higher interest rate than traditional savings accounts. Typically, money market accounts also have higher minimum balance requirements…Money market accounts let you grow your money more quickly but without the uncertainty tied to investment accounts.?

You can consider a money market account as a hybrid between a savings bank account and a checking account. From both options, you get the best features in your money market account. While you have the power to earn more interest as is possible in a high-yield savings bank account, you also get debit card and checking privileges in the money market account.

Your money is insured by the FDIC up to $250,000 for every depositor, for each category of account ownership. Hence, even if the bank fails, your funds to the bank are insured.

However, you will need to understand here that your money market account is not for everyday usage. Despite that, it offers some form of flexibility so that you will be able to access funds when you are in need. However, these funds are also subject to transaction limits as per federal laws.

How Does A Money Market Account Work?

According to Investopedia,

?Money market accounts are suited for individuals who want to earn more interest than they would with a savings account with short-term goals in mind. As such, an MMA may be a good idea if you’re saving up for a specific purchase, such as a vacation, the down payment for a car, or for a rainy day or emergency fund. They are not intended for long-term purposes like retirement.?

Basically, you will get the benefits of a savings bank account and some of the benefits of a checking account. However, you will need to deposit an initial amount to open a money market account. Furthermore, you will also have to maintain your balance above a certain number. Otherwise, you will be liable for a monthly penalty (or service charge).

These accounts basically work like any other deposit account. As you deposit your funds in a money market account, you will be able to earn interest on those funds. You get your monthly payment, but the investment is compounded on a daily basis.

You can access the money whenever you are in need, and you will not have to pay a penalty, unlike CD (Certificate of Deposit) accounts.

Importance Of Money Market Account

The importance of money market accounts lies in the number of features that it provides. Here are some of the major features of money market accounts that make them really important:

1. With money market accounts, you will get a higher Annual Percentage Yield (APY), which is not available with other savings accounts.
2. Like checking accounts, you will get the privilege to write checks, and you will also get debit cards for easier transactions.
3. Having the checking option allows owners to access money for day-to-day transactions. Furthermore, some money market accounts also come with perks for using checking accounts.

However, if you are looking for money certainty, money market accounts are not recommended. This is because you will have variable interest rates, which fluctuate a lot. Hence, choose wisely.

What Are The Pros And Cons Of Having A Money Market Account?

According to CNBC,

?The average interest rate for money market accounts is currently 0.57%, which is higher than the average return for a savings account or interest-bearing checking account. But certain CDs and high-yield savings accounts offer better rates than most money market accounts.?

You can use the debit card as well as checks to access your money in your money market account. However, these accounts also have some transaction limits, and in case of excessive withdrawal, there is a fee as well. This holds true even when the US Federal Reserve does not even require the limits.

Pros Of Money Market Accounts

Here are some of the essential pros of a money market account that you must know:

1. You will get a higher interest rate.
2. You will have the option to write checks and get debit card privileges as well.
3. The account gets Federal Insurance Protection.
4. The Federal Deposit Insurance Corporation also insures the banks and the National Credit Union Administration insures the accounts available at credit unions.
5. You will have easier access to your money than that of a normal savings account.

Cons Of Money Market Accounts

Here are a few cons of money market accounts that you must be aware of:

1. To open an account, you will need to have a certain amount of money in the bank
2. You will also need to keep your account balance above a number. If your balance falls below that minimum, there is a monthly penalty for that.
3. You can only have a limited number of transactions, and there is a requirement for a minimum balance.
4. As compared to other banking options like some CDs and high-yield accounts, you will get lower interest rates.

Final Thoughts

How does a money market account work? I hope you have found the answer to this question in this article.

Continue Reading:

• The Benefits of RUN ADP: A Comprehensive Guide
• What is an echeck: The Future of Online Payments?
• How to Read a Check for Fraud: Red Flags to Watch Out For