Updated July 21, 2023
Introduction to Money Market Account
Money market account refers to the account which is a hybrid of a saving account and a checking account where the rate of interest on the money deposited in this account is higher when compared with the saving or the hybrid account but at the same time, there are requirements with respect to maintenance of the monthly minimum balance and the maintenance fees.
Explanation
These are different from the traditional saving account as well as the checking account that is being offered by the banks and other financial institutions, however, they have some of the features of both the saving and the checking account. In MMA facilities such as checks writing, debit card transactions, interest on the balance, etc are available. Also, there is safety insurance available in the case of most money market accounts.
Features of Money Market Account
Following are the features of the MMA:
- Minimum Balance Requirement: There is a requirement of maintaining the minimum balance which is generally high and in case the amount in the account falls below the minimum amount required then it would attract fees.
- Safety Insurance: There is safety insurance available in the case of the MMA.
- Transaction Limits: There are certain transaction limits in case of payments using MMA. So they are not as flexible as the checking account.
- Higher Interest Rates: This offers a higher rate of interest than saving or checking accounts.
How Does it Work?
Many banks, as well as other financial institutions, offer the facility of Money market accounts to their customers which is a hybrid account of checking accounts and saving accounts consisting of some of the features of both accounts. This has both advantages as well as disadvantages when other accounts are compared. When compared with the savings account and checking account it provides a higher rate of return in the form of interest, insurance protection, check writing facility, and privileges of the transaction using the debit card. However, for opening and maintaining a Money market account, the customers are required to keep a certain amount of their money as the minimum balance in their account. If the amount in the accounts falls below the minimum required then the customers might have to pay the monthly fees for the same.
Example of Money Market Account
Jam has some of the balance lying idle with him. He wants to invest in an account where she can get a good rate of interest along with the privileges with respect to the check writing and the debit card. For this, she decides to open a money market account instead of a savings account and checking account because he noticed that the money market account offers the best rate of return in the market and fulfills other requirements of him.
How to Choose Money Market Account?
Following are the steps that should be followed for choosing the money market account:
- One should know its risk-taking capacity and the risk associated with the money market accounts. This is so because generally, money market accounts are safe, but some of the accounts have a slightly high risk than others. So, one should choose according to his risk-taking capacity.
- After this one should know about the minimum balance requirement required by the issuing institutions and the fees to be charged in case the balance goes below the required limit.
- There are different withdrawal conditions with each account. One should check and opt for the account that meets with its required condition.
- Also, the rate of interest offered may vary from one bank to another. One should choose the same according to its requirement.
Uses of Money Market Accounts
This is useful in case of the money which a person might require in the relatively near future. Deposit in these accounts provides a good rate of return along with ensuring the safety of the funds. These accounts are mainly useful for expenses such as funds required in case of an emergency, funds required for education and funds required for the quarterly tax payments, etc.
Difference Between Money Market Account and Savings Account
Some of the differences between a money market account and a savings account are:
- This offers a high rate of interest when compared with the savings account
- In the case of the savings account, one cannot typically write the checks whereas in the case of the Money market accounts facility of writing the checks is available.
- This has higher minimum balance requirements when compared with the savings accounts
Advantages and Disadvantages
Below are the advantages and disadvantages as follows:
Advantages
- It offers a rate of interest that is higher than the traditional savings account as well as the checking account.
- This generally has the safety of the NCUSIF or FDIC and insurance.
- This provides liquidity to the owner depositing its money as it does not have any maturity date.t
Disadvantages
- In case of the most money market account, the requirement is there to maintain the minimum balance, and failure to maintain the same would attract penalties in the form of fees.
- Only a certain amount of transactions are permitted every month.
Conclusion
Thus money market account consists of some of the features of both checking and saving accounts. This account is used by the depositors as they offer a rate of interest that is higher than other accounts. While the difference of interest might be small but the same could be enough for offsetting the liquidity constraints in case depositors do not expect to access their cash quickly. However, this account is not suitable for regular expenses as there are certain limits on the number of check-based payments that one can make using this account.
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