Money Market Accounts

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What is a Money Market Account?

A money market account works a lot like a traditional savings account, with a few restrictions.  Banks and Credit Unions offer these accounts to give themselves more freedom to use your money in exchange for a higher interest rate.  So while a typical savings account will get less than 1% interest these days, a money market account can gain more than 1%, making it a great place to park your money in the short term.

Restrictions on Money Market Accounts

Money Markets have a few restrictions you may not generally find in a savings account.  The first is a minimum balance.  These vary from institution to institution but can range from as low as $1,000 to as high as $25,000 or more.  If you do not meet your minimum balance obligation, you will be charged a fee.  Also, since money markets are considered savings accounts rather than transaction accounts, they must comply with regulations limiting the number of withdrawal transaction to third parties.  This is a monthly limit, and is designed to prevent you from using the money market account for daily transactions.

Benefits of a Money Market Account

  • Money markets are FDIC insured, protecting the money in the account up to $250,000.
  • They allow you to write checks on the account, although this is limited to around three per month.
  • In exchange for limiting access to your own money, banks will give you a higher interest rate.

Downsides of a Money Market Account

  • Liquidity of your money is less than it would be with a traditional savings account (although it is more liquid than it would be with a Certificate of Deposit).
  • Transactions are limited to six or less per month.
  • Minimum balances can be high, making money markets less than ideal for paying daily expenses.

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