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.
Phil Cannella
Partnered with CBS Radio Network, Phil Cannella reports on the issues most important to the American retiree.
Phil Cannella

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