The money market account work in the same way as that of the checking account. These accounts are opened either by the banks or the credit unions. You are issued with a debit card or a cheque, with which you can make transactions. Not all the features of the checking account are associated with it.
Some of the minor differences between both the accounts are the interest rate and the deposit requirements. The money market account pays a higher interest rate and you can make three withdrawals each month. Do not consider using this account for the daily base transaction account.
What is a Money market?
The money market is the place where you can borrow and lend securities for a particular time period. The security matures after a time frame of one year or less than a year. The banks, government agencies, or other institutes can sell these securities to have a cash inflow. Individuals can invest money in this market but at low risk.
However, the instruments included in the money market are certificates of deposits, treasury bills, commercial papers, bill of exchange, short term mortgages or federal funds. The small companies can borrow the money from the money market mutual funds as the risk of losing the money is lower as compared to the larger companies borrowing the money directly from the market.
How a Money Market Account is Managed?
With a money market account, you can withdraw the money at any time you want to. With this type of account, you are only allowed to have a limited number of withdrawal transactions per month. The money market account offers you to withdraw the money at any time.
In case of an emergency, even the deposited amount can come into use. But the money market account limits the number of transactions in a month. On other hand, you may have to pay a specific amount of fee, incase if the account balance in the bank is below the minimum level. They charge a fee that ranges from $5 to $10. This applies to every withdrawal transaction.
Before opening an account, it is always better to compare the account and its features with the competitors. Ensure the following things are taken into account:
- Account fees.
- Account services.
- Interest rate.
- Minimum account balance requirements.
You are issued a register with the money market account. In the register which looks like a checkbook, you have to mention the starting balance in your account along with all the withdrawals and the amount deposited in the account.
In short, this will help you to keep a track of the amount in the money market account. Moreover, each month, the bank issues the statement against your bank account. The statement enlists all the deposits, withdrawals, transfer transactions, and the interest amount earned on the deposited amount.
- Interest rates are higher.
- Issuance of debit cards.
- The cheque option is available.
- Deposit the minimum balance.
- Pay the fees.
- Limited withdrawal transactions.
Features of a Money Market Account Work:
1. Earn High Interest Rate on the Deposited Money
The money market accounts yield a higher rate of interest for the deposited amount in the bank. They are better in use as compared to the savings account of the checking account. 0.15% is the average rate for a deposit of $100,000. If you open the MMA online, then you are given a higher rate.
- High interest rate.
- Minimum deposit amount is $100,000.
2. Cheque Transactions
You can perform cheque transactions from a money market account. You are allowed only 6 transactions in a month which includes: paying the bills, transferring money, debt purchases, and others.
- Use of cheques.
- Limited transactions.
3. MMA- An Insured Account
The deposit in the money market account is insured till the bank that has your account is listed on the FDIC or the credit union list. If $250,000 is insured in the account, this means that you will still be paid the interest rate account, if the credit union or the bank reaches to its minimum level.
- Deposit amount insured.
- Interest amount payable.
- Cannot use without insurance.
Uses of Money Market Account
The money market accounts are a good place for investing in money as you get a higher rate of interest but this is acceptable from the future perspective. Your funds are safe when kept in the money market account. You can access those deposited funds at any time. You can use those funds for some large expenses, such as:
- Tuition fee.
- Funds in need of an emergency.
- Tax payments.
On the hand, the money market account is not a good place for investing in the money because you have to face limitation which includes: number of transactions in a month. To earn higher interest rates on the deposited amount, it is better to keep the fund for a higher monthly expense.
Make sure you are not confused with the money market mutual funds and the money market account. Both of them work in a different pattern. It is just a type of investment tool rather than a federally secured tool.
How Does a Money Market Account work?
Most of the credit unions and banks offer their customers in-person and online services. Both can be utilized in different ways. Currently, there are many banks that are offering a minimum $0 account balance. If the bank provides you with to transact cheques from your money market account, then you can avail the highest number of transactions in a particular month.
The terms and conditions of the account clearly state the annual percentage yield. This is the rate at which you will be earning the compound interest against the deposited amount. You can insure up to $250,000 of money in the bank account. For a joint account, the amount ranges to $500,000.
Alternates to Money Market Account
The credit union or banks do offer different types of account. Some of them may be superior or competitive with the MMA. The alternates to the money market account are:
1. Checking Accounts
The checking accounts are different than the money market accounts or the other accounts. These accounts allow you to perform multiple transactions either through ATMs, cheques or wire transfers. Checking accounts are listed with the NCUA or FDIC. They offer a lower interest rate due to which people are not depositing money in them.
- Multiple transactions.
- Lower interest rate.
2. Passbook Saving Account
The savings account does not have any minimum account balance requirement. Their interest rate is different than the money market account. The passbook saving accounts is also listed with the FDIC or NCUA. Such accounts allow you to avail only six transfers in a month.
- No minimum account balance.
- Limited transfers/withdrawals.
3. High Yield Savings Account
Some of the banks or the credit unions may offer you with a higher interest rate but that is entirely dependent on the bank. These accounts are also on the FDIC or NCUA lists and hence are insured. You have to make a direct deposit with such accounts which is the only main drawback for people, who do not prefer this high yield saving account.
- High-interest rate.
- Insured account.
- Direct deposit of money.
4. Rewards checking account
When opening an account under rewards checking account, you may receive some bonus or other rewards associated with it. The bonus may end up in higher yields, cash back, reimbursements i.e. ATM fee or the airline miles. Unless and until all the rules are regulations are followed, you may not receive high yields.
On the other hand, this account works in a similar way as that of the checking account which is insured with the FDIC or NCUA.
- Bonus or rewards.
- High yield.
- Listed with FDIC.
5. Certificates of Deposit
The certificate deposit is similar to the savings account. It has a fixed time frame limited to 3, 6, 9, or a year. At times, the time limit may go up to 10 years. When the deposited amount is locked for a specific time period, only then the depositors get a higher rate of interest as compared to the savings account.
The depositor has to pay a penalty fee if the deposited amount is withdrawn before the end of the time period. This loss is in the form of the interest rate. On the other hand, if the penalty is not charged for an early withdrawal, then you receive a lower interest rate. The certificate of deposits is insured by FDIC or NCUA.
- High interest rate.
- Limited time frame.
- The penalty fee for early withdraw.
Frequently Asked Questions (FAQ)
Q: Are there any benefits of using the money market accounts?
Answer: If you have your account opened as a money market account, then you are being offered a higher interest rate which is of great benefit to the people. So, you are getting a higher yield in hand against the deposited amount. The MMAs are totally insured providing you with cheque writing and debit card features.
Mostly the people are attracted towards the MMAs because of the higher interest rates as compared to the savings account. MMAs allow you to invest in government securities, certificates of deposits, and commercial paper. Such benefits are not offered by the savings account. Lastly, MMAs allow you to transfer the funds from one bank account to another. Hence, in short, the money market accounts are of worth for the people.
Q: Is there a fee for opening an MMA?
Answer: No, we do not charge any maintenance fee for opening the money market account.
Q: Is it safe to use money market accounts?
Answer: The money market accounts are totally insured and secured to use. The Federal Deposit Insurance Corporation i.e. FDIC guarantees that it is safely insured. Different types of accounts are offered by FDIC which includes the money market accounts.
You are allowed to deposit $2, 50,000 of deposit in a particular bank. If the depositor has other accounts in the same bank, the deposits will be included in the insurance limit. Moreover, if you want to have an insurance amount of more than $2, 50,000, then you have to have more than one account but in multiple accounts.
Q: Is it easy to access the money in an MMA?
Answer: Yes, it is much easy to access the money either online or in person by visiting the bank.
Q: Is there a difference between a money market account and a savings account?
Answer: he money market account is secured which is offering a higher interest rate against the deposited amount. If you invest more, you get paid more amounts in return.
Q: Are the funds linked with only certificates?
Answer: No, you can withdraw your funds from the account at any time as they are not fixed in the form of certificates only.
Q: Are there any disadvantages of money market accounts?
Answer: A money market account offers you limited transactions and withdrawals. For the MMA, you have to have a minimum balance in the account. You are allowed 6 transfers and payments within a month. In order to open an account in a bank or a credit union, you are required to deposit a certain amount.
You may have to pay some fees if the balance is lower than the minimum amount. On the other hand, some of the MMAs don’t yield a higher return against the amount deposited in the bank.
Q: Is money market account and money market fund similar?
Answer: No, both are different. The money market account gives you a higher interest rate whereas the money market fund gives you a lower interest rate and it is not a part of FDIC.
The money market accounts are very much similar in functionality to that of the checking account and the savings account. The MMAs yield a higher interest rate leading to a greater amount of funds. You can easily use these funds in an emergency situation. The funds deposited in the money market accounts are insured, hence no fear of losing them.
Lastly, both the money market funds and money market accounts are different irrespective of the interest rate. If you tend to use the account on regular basis, then opening an account as a money market account is not worth it. This is due to the number of expenses you have to bear on a daily basis.