Overview
Money market accounts are accounts that can be
opened with a bank or a credit union. These are also known as "MMDA,"
which stands for money market demand account or money market deposit
account. They operate somewhat like savings accounts. The interest rate
for a money market account is typically higher than that of a savings
account. The minimum balance requirement is also higher than that of a
savings account. With a money market account, you can write checks that
are similar to normal checks. However, there is a limit on the number of
checks that can be written and the withdrawals that can be made.
How It Works
It's important to be sure that you are investing in the right type of
account. For instance, your bank might be offering something called a
money market mutual fund in addition to a money market deposit account.
Although they sound similar, these are two different forms of
investment. Money market accounts are deposit accounts and function like
regular savings accounts. Once your money market account is opened, a
small book, called a
register, is given to you to track
deposits, withdrawals, and the current balance. A book of checks is
also issued. You can use a set number over a certain period of time
without penalty, as long as the balance in your account is above the
minimum, which is usually $1,000. You can transact on a limited basis
with your money market account. Most banks permit you to write three
checks monthly. Reconciling can be done every month when the bank sends a
statement of your account by mail or e-mail that lists your
transactions along with any interest earned or fees charged by the bank.
Benefits
The yield that you get from money market account is more than what
you get from the traditional savings account because the interest rates
are generally higher. Money market accounts in banks are insured by the
Federal Deposit Insurance Corporation (FDIC) and those in the credit unions are insured by the
National Credit Union Administration
(NCUA), which implies that the money is safe even if the institution
becomes bankrupt. There is easy access to the deposit in your account in
the event of any emergency. Money can be accessed by writing checks,
making a withdrawal by telephone or Internet, debit cards (in certain
cases), or by having automatic withdrawals sent to the accountholder's
local checking account.
Cost/Pricing
The cost of opening a money market account depends on the financial
institution that you have opted for. Most institutions demand a minimum
balance of $1,000 or $2,500 in a money market account, while some
require even higher.
Timing
An investment in money market accounts is not subject to market
timing restrictions. People who require easy access to their savings can
look into money market accounts anytime because generally, there are
services including free check-writing, automated electronic exchanges,
telephone exchange, and redemption.
Companies/Industries
Financial institutions like banks and credit unions offer money
market accounts. It is wise to compare what different banks are
offering. Points you need to focus on are fees and service charges on
the account, the minimum balance, required and the rate of return.
Bankrate.com recently produced a ranking list of the top 50 money market
rates. Everbank ranked the highest of all with a 1.83% rate. Their
monthly service fee, however, is roughly $9. Flagstar came in second
with 1.81% rate and does not require a monthly service fee.
