Money Market Accounts

Introduction

A Money Market Account is a savings account, but with a difference. It usually has a higher rate of interest, a higher minimum deposit requirement and a limit on the number of withdrawals you can make per month.

This account is also called a "MMDA" or a "Money Market Deposit Account".

Advantages

You can take advantage of a higher interest rate on savings that you make in this account. With the limits placed on the number of withdrawals and the minimum balance, one can assure that a certain amount of money will be saved by an individual.

The money that is saved in such an account can be treated as an investment. This money is also insured by the Federal Deposit Insurance Corporation (FDIC). This is an added safety feature for the investor, in case the bank or credit union goes out of business.

Interest in the money deposited in such an account is calculated daily, and paid monthly. The banks are, therefore, paying you compound interest. This is more than what they would pay you using simple interest.

Take Care

However, there are some things that you need to be careful about while operating such an account. The bank will charge you if you don’t maintain the minimum balance, or if you withdraw more number of times than what you are allowed.

Facilities

This account, just like any other account serviced by the bank, entitles you to a checkbook, passbook and statements. Depending on the policies of the bank, you may even be able to access the account online and receive statements via e-mail.

Conclusion

As an individual, you need to understand how much you earn per month, how much you spend, how many transactions you have to make per month, and how much you can save.

A Money Market Account is essentially a high interest yielding Savings Account and you need to treat it as such. You cannot use this account like a Checking Account.

It is, therefore, very important to understand each and every aspect of such an account while opening it. It makes sense to ‘shop around’ with several banks and to settle on an account with a bank that suits your income-savings level.