What to Know About Money Market Deposit Accounts
If you’ve been looking for a place to save and grow your money risk-free, the money market deposit account is one of the few options that earn a decent rate of return while being FDIC insured. Not to be confused with money market funds, which are not insured by the FDIC, money market deposit accounts are great for beginning investors and for people who want to see their money grow and still have access to the funds.
A money market account is somewhat like a hybrid between your standard passbook savings account and your checking account. You are only allowed to make minimum monthly transactions with your account – but in exchange for limiting your transactions you receive a higher interest rate.
Money Market Deposit Account Benefits
When compared to a interest earning checking, savings, or investments - money market accounts offer a number of benefits, including:
- Instant access to your savings if necessary via in-bank withdrawals, check writing or money transfers from your money market to other bank account
- Higher interest rates than checking and savings accounts, interest rates are usually half a percentage point below Treasury bills
- Ability to write checks (usually 3 per month) from funds in a money market deposit account
- Low initial deposit requirements to establish an account
- Deposits are insured by the FDIC up to $100,000 per person – which means they are just as safe as your regular savings account in the event of bank failure
- Interest may compound daily, depending on the account you open, which means the more often you make a deposit, the more money you earn.
Money Market Account Disadvantages
Even with as many advantages that money market deposit accounts offer, there are a few disadvantages you should understand before opening an account:
- Not good to use as your only checking or savings account because you are limited to the number of withdrawals you can make each month. If you withdraw more times than your account allows, each transaction will be charged a fee.
- Interest rates are lower than the standard money market fund interest rates in exchange for the security you get from FDIC insurance.
- To avoid monthly maintenance fees, you must maintain a minimum account balance.
- To avoid a drop of your interest rate, you may also need to maintain a minimum account balance.
Trisha Wagner is a freelance writer for DepositAccounts.com, where you can compare rates of checking accountsfrom dozens of banks in one place. Trisha writes regularly on the topics of personal finance and savings accounts.
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Interesting description of the pros and cons of money market accounts. Due to some of the negative aspects, I have not opened one of these for myself. But I think that most savings accounts are tied to the money market too, so in that sense anyone who has an interest bearing savings account is involved in the money market too.
Please, tell us what the country is for which you give this financial advice.
Take Spain for instance, where I am banking with a huge financial institution… There your good ideas don’t really help. Besides, my bank is applying changes to savings accounts for example almost all the time.