What is a Money Market Account?

A money market account is very similar to a savings account. They are insured by the federal government and offer several of the same services as checking accounts. Money market accounts are an expedient place to store money for future or from prior investments. These safe and highly liquid investments are usually managed by brokerages or banks. The money you keep in this account will be invested, but the bank or other institution does the investing and collects the return, while paying you an interest rate that is typically higher than a traditional savings account. Your money is usually put into investments like CDs, or Certificates of Deposit, Treasury Bills, or other safe financial instruments. Each of these are low risk, short term investments. Money market accounts usually offer a lower interest rate than other investments, despite typically having higher rates of return than savings accounts.

Money Market Account Traits

Money market accounts, also known as money market deposit accounts, offer much lower interest rates compared to conventional accounts. However, these rates are competitive because their rates are usually in exchange for larger than normal deposits. In order to be eligible for the best money market account, an account holder has to make cash deposits that go beyond those that are required for a normal account. A money market account holder must retain a certain minimum account balance. Money market accounts monthly transactions are generally more limited than other savings or checking accounts. Additionally, your balance cannot go below the minimum without penalties. These restrictions allow the bank to invest the money with more discretion, allowing a higher return.

Money market accounts are called by financial planners one of the most popular forms of savings. Their reasoning is that for many individuals, money market accounts are the safest way to invest while avoiding the risks of the stock market.

You might also be interested in learning about money market accounts vs. CD accounts, another ultra-safe investment tool.