Money Market Account: What Is It? – Benefits, Features, And More

A money market account basically merges the good features of a savings account and a checkbook account. It is a special type of savings account you can get in a bank or credit union. As compared to a savings account, you can get a higher rate of interest, as well as check writing and debit card privileges. There is a combination of flexibility and restrictions with money market accounts, which we shall take a look at shortly.

In this article, you will learn about the essential details of money market accounts and how these accounts work. In addition to this, you will also learn about the major features that make money market accounts a better option than savings accounts, especially for businesspersons and professionals. Finally, we will share with you some of the major pros and cons of a money market account.

What Is A Money Market Account?

According to Investopedia,

?A money market account (MMA) is a special type of bank or credit union savings account with some features not found in regular savings accounts. Most money market accounts pay a higher interest rate than regular savings accounts. They also often include check-writing and debit card privileges.?

However, there are some major restrictions present in money market accounts. For example, if the balance is lower than a certain threshold, there is a monthly penalty on that. Furthermore, if you transact more than a certain limit, then there is a penalty for that as well.

Despite the restrictions, the best part is that with a money market account, you will be able to receive a higher rate of interest than a regular passbook savings account, as well as privileges for check writing and debit cards for quick transactions.

Moreover, you must not confuse money market accounts with money market mutual funds, as the latter is not a deposit account. In addition to that, you will get competitive rates with MMAs, and they provide you with a safe space to save your money. Furthermore, a great thing about money market accounts is that you will get federal insurance safety as well as a predictable yield.

How Does A Money Market Account Work?

According to CNBC.com,

?The funds you deposit into a money market account are insured by the FDIC (up to $250,000 per account), which makes money market accounts a safe option for your cash. These accounts sometimes require larger minimum balances compared to a traditional savings account, but they also tend to come with higher interest rates.?

Both traditional and online banks offer money market account options to customers who want to get higher yields with their savings. Banks and financial institutions provide account holders with a variety of benefits that come with a savings account, as well as the ones that come with a checking account.

Like savings accounts, money market accounts allow the owners of the accounts to earn a higher rate of interest on the savings balances. In most cases, the rate of interest is higher than that of a traditional savings account. However, with changes in inflation, the rate of interest also changes with fluctuations in the conditions of the market.

In many banks, you will also get debit cards and check-writing facilities when you open a money market account. However, as already discussed, you will need to have a minimum level of deposit if you want to open a money market account. That is, you will also need to maintain the balance above a certain threshold if you do not want to pay a penalty.

Is Money Market Account Better Than A Savings Account?

According to BankRate.com,

?Money market accounts support more ways to withdraw money than traditional or high-yield savings accounts. However, money market accounts are typically still limited to six withdrawals per month, and aren?t intended to be used as a replacement for a checking account. They may require bigger minimum deposits and balances compared to savings accounts.?

Apart from providing a higher rate of interest for your balances, money market accounts also come with fluctuating rates of interest. This happens due to the rise and fall of market forces like inflation. Furthermore, these interest rates also get compounded daily, monthly, and even yearly.

You will also get check-writing privileges with money market accounts, which you will not receive with savings bank accounts. Furthermore, you will also be able to reap the benefits of a debit card, which is available with a regular checking account.

What Are The Major Pros And Cons Of Money Market Accounts?

The following are some of the major pros and cons of money market accounts:

Pros Of Money Market Accounts

Here are some of the major pros of money market accounts that you will need to know of:

1. You will earn a higher interest rate. Currently, money market accounts (the best ones) pay around 4.15 – 5% APY, which has increased since 2022.
2. You will get federal insurance on your deposits. Even if the bank closes down, you will still get your money.
3. You will be able to access your cash more easily.

Cons Of Money Market Accounts

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

1. The minimum requirement for deposit is a bit high, and you will have to pay a penalty if the balance is less than the minimum threshold.
2. You will get lower yields as compared to certain bank products like Certificates of Deposits.
3. There are restrictions on withdrawals in certain cases.

Final Thought

Hope this article was helpful for you in getting a better idea of how money market accounts work. You have understood that money market accounts mainly provide the benefits of both savings accounts and checking accounts. You will generally get a higher rate of interest than regular savings accounts.

Generally speaking, if you are looking to save for the short term and are not fully thinking about your long-term financial planning, you will need to choose money market accounts. This is because money market accounts offer a higher yield than other counterparts.

Do you have anything more to add regarding money market accounts? Share your views with us in the comments section below.

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