What are Money Market Accounts?

A money market account generates high cash flow within a short time through interest. You can get money market accounts at both traditional and online banks as well as credit unions.

In this article, we bring you everything you need to know about money market accounts. The operations, pros, cons and many more. So, read on.

Money market accounts are forms of savings accounts that accrue high interest rates. Different institutions offer money market accounts with different regulations. Some people tend to confuse money market accounts with Money Market Mutual funds which are different.

Unlike the regular savings accounts, money market accounts pay higher interest rates. They also include crucial features such as check writing and debit card usage. These accounts, however, have stringent measures and are, therefore, not very flexible. For example, you have to maintain your account balance within a specific threshold without failure.

How Do Money Markets work?

A money market account has its unique characteristics different from other savings accounts. First of all, they pay higher interest rates and are easily accessible.

As mentioned earlier, money market accounts are accessible both on online banks and from credit unions. Considering their higher interest rates and insurance protection to associates is an added advantage. Additionally, other privilege of a money market account is that it provides a debit card and check features which make your transactions efficient.

Also known as a money deposit account, money market account is insured under Federal Reserve’s Regulations. This means that you’ll have a limited number of transactions you can make in a month. Your withdrawals and transfers will not exceed six, nevertheless, there are some bank transactions and ATM withdrawals that are not counted among the six. It’s very important to check with your bank on their rates and strategy of running their money deposit accounts.

How to open a money market account

To open a money market account, you deposit a given amount of money into your account. Then your account is activated. The money you deposit will bear you interest either monthly or yearly according to the bank's policy.

Your account balance should not go below the set limit. Otherwise, you’ll pay a fine for keeping your balance below minimum. However, the fees charged mostly do not go above 15%.

Pros and cons of money market accounts

Just as other accounts have their advantages and disadvantages, money market accounts are not an exception. They have a share of merits and demerits.

It’s very important to know how to benefit from a savings account before putting in your money into one. You need to compare the gains and drawbacks before pumping your money in any account.

Pros

1. Provides security for your money

These banks or credit unions are insured by Federal Reserve’s Regulations D. This means that your account is protected. In case of anything like an economic strain, the bank will refund your money.

2. Easy way to access your funds

With a money market account, accessing your money is a simple process. All it takes is writing a check or using a debit card. You make purchases from anywhere using your debit card freely. Money market accounts also allow you to make electronic transfers from your account.

With mobile platforms gaining popularity every day, money access through apps is very convenient. So, with your money in a money market account, it’s just a few clicks from your pocket.

3. High-interest rates

Money market accounts give you higher interest rates when compared to other savings accounts. It’s the shortest way to generate high returns from your savings. Although the percentage of interest varies from one institution to another, they are always way high.

Cons

1. Limitations to withdrawals

Contrasting with a checking account which gives you sovereignty to make as many transactions as you want, money market accounts are limited. You have a limited amount of checks you can write and restricted to a certain limit of transactions. These restrictions are the cost of the high interest returns. So, you must be willing to compromise.

2. A set minimum balance

Compared with other savings accounts, you must maintain a set minimum account balance. Having funds below the set account minimums attracts severe charges from the bank.

3. Chargeable fees

If your money market account goes below the set minimum balance, the bank or credit union will charge you or fine you. And worst fact is that the money comes from your savings.

4. Slightly expensive

A normal savings account does not need a minimum amount of money to be activated. However, money market account has its limits. This can be expensive if you can’t afford.

Conclusion

With the shared knowledge on money market accounts, you can choose whether it is the best saving plan for you. If your bank’s payments are alike in both the standard payment and the money market account, it is wise to stick to the savings account. With this, you’ll likely be escaping restrictions of the lowest balance requirements. After all, both accounts are covered.

In case the money market accounts of your bank have a higher interest rate and you can afford the minimum balance required, then money market is the way go. But you must be ready to follow all the rules contained in the policy. Otherwise, you’ll end up losing your hard earned cash.

Disclaimer

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