A money market account (MMA) is not exactly a checking account or a savings account. Instead, it’s a combination of both, sharing some features with each. It allows people to take out money, move it between accounts, and use a debit card, just like a regular checking account. At the same time, MMAs typically give better interest rates compared to regular savings accounts. To learn more about money market accounts and how they function, continue reading.
A Short History of Money Market Accounts
Banks made a special kind of account called a hybrid money market account (MMA) to give people better interest rates than regular savings accounts. However, there’s a tradeoff for this benefit. The higher interest rates often mean you need to put more money in the account initially.
For many MMAs, you need to keep a certain amount of money in the account every day (usually starting at $1,000 or more) to get the best interest rate possible. Some MMAs have different levels of savings that offer even higher interest rates if you save more money.
People started liking MMAs a lot during the 1980s. Back then, interest rates went really high, even into the double digits. This gave people a chance to make a lot of money without taking big risks. The money put into MMAs is often invested in things like certificates of deposit (CDs), government securities, and commercial paper. These things can make more money compared to what you get from regular savings accounts.
- Advertisement -
Checking or Savings?
People often get a bit confused about what a money market account really is. An MMA is not the same as a checking account or a savings account. But it does have some similarities to both. These accounts usually give you more money through interest compared to regular savings accounts.
They can give you a better interest rate because they ask you to keep more money in the account, and they might also have rules about how often you can take money out.
Before April 24, 2020, as set by a rule from the Federal Reserve, both MMA and savings account holders could only take out or move money six times a month. If they did it more than that, the bank could charge them a fee. This rule has changed now, but some banks still have their own rules about how many times you can take money out and might charge you fees if you go over that limit.
Similarities to Checking Accounts
MMAs are like safe places where you put your money, and the Federal Deposit Insurance Corp. (FDIC) makes sure your money is protected. This is the same organization that ensures your money in regular bank accounts.
You can find these accounts at regular banks, credit unions, and even on the internet. An MMA is quite handy, kind of like a checking account. For instance, many money market accounts give you a special card and checks. With these, you can take out money from ATMs or buy things at stores. If the bank lets you use the internet to check your account, you can also move money around and pay bills, just like you would with a checking account.
- Advertisement -
You might also be able to take out money from ATMs or bank branches without limits. But be careful, because there might be rules about how many times you can take out money in other ways every month.
| Comparison of Checking, Savings, and Money Market Accounts | |||
|---|---|---|---|
| Checking Account | Savings Account | Money Market Account | |
| Federally Insured Deposit Account | Yes | Yes | Yes |
| Withdrawals, Transfers Allowed | Yes | Yes, but their number may be limited | Yes, but their number may be limited |
| Allows Debit-Card Transactions | Yes | Sometimes | Sometimes |
| Minimum Daily Balance Requirement | Sometimes | Sometimes | Often |
| Interest Rate Paid | Sometimes, but rates are the lowest of the three kinds of accounts | Yes, but lower rates than money markets usually | Yes, typically higher than a regular savings account |
Savings Element
Even though it’s a bit like a checking account, the main goal of an MMA is to help you save money. This means the money you put in your account gets extra money called interest, and this extra money is usually more than what a regular savings account gives you.
Lots of MMAs decide how much interest you get based on how much money you have in the account. If you have less money, you might get a little interest. But if you have more money, you can get even more interest.
- Advertisement -
The reason they give you more interest is because they ask you to keep a certain amount of money in the account. If your money goes below that amount, they might not give you as much interest. Also, they could make you pay fees if you don’t have enough money in your account.
Can You Lose Money in a Money Market Account?
Your money in a money market account is very safe, unless you put more than $250,000 in it and the place where you keep it goes out of business. If you keep your money in a bank, the money market account is protected by the Federal Deposit Insurance Corp. (FDIC). If you have the account at a credit union, it’s protected by the National Credit Union Administration (NCUA).
Is It Worth It To Put Money in a Money Market Account?
Deciding if a money market account is a good idea depends on what each person needs. These accounts might give you more interest money compared to regular savings accounts, which can help you earn more from your saved money. Money market accounts also make it easier for you to take out your money and are kept safe by the FDIC or NCUA.
However, one thing to keep in mind is that money market accounts often ask you to have more money in your account to start with and to keep in there.
What Is the Difference Between a CD and a Money Market Account?
A money market account gives you good things from both checking and savings accounts: it’s easy to take out your money and you can also earn more interest on the money you put in. But if you choose a certificate of deposit (CD), your money is locked away for a while, so you can’t use it during that time.
The Bottom Line
Money market accounts work well for folks who can keep a certain amount of money in the account, which might be more than what’s needed for a regular savings account. In exchange, you get a better interest rate on the money you save compared to what you’d get in a regular savings account. Money market accounts usually let you take out your money, move it around, and sometimes even use a special card or the internet to pay bills, just like with a checking account. However, remember that there could be rules about how often you’re allowed to take out your money from a money market account.
Trade on the Go. Anywhere, Anytime
One of the biggest places for trading digital currencies is available to you. Trade safely with low fees and special help from customer support. You can also use tools from Binance that help you see your trading history, manage automatic investments, check price graphs, and change currencies without any fees. Signing up is free, and you can join many traders and investors from around the world who are part of the crypto market.
