How does a money market account work?
A money market account, or a money market deposit account (MMA, MMDA) is a specific type of savings account offered by banks or other financial institution like credit union. How does it work? You go to a bank and open a money market account.
You deposit some amount of money to your account, let’s say, 5 thousand dollars. And the bank pays you interest on money. The bank uses that money for financial investments. You don’t care about that. Your money, under $250.000, is insured by FDIC – The Federal Deposit Insurance Corporation. It means, if the bank goes out of business, you get your money back.
Money market accounts are similar to a savings accounts, and a certificates of deposit.
What is the difference? What are the differences between savings accounts and money market accounts?
Three are four key differences.
First. An interest rate. It varies quite a bit from bank to bank, but money market accounts tend to pay higher interest rates than savings accounts. The amount of interest depends on the account balance. It is called tiered interest rate. The more money you invest, the better the return.
Second. Money market accounts have restrictions on how often you can withdraw your money. In most cases you are limited to three or six withdrawals a month.
Third: Minimum amount. If you are willing to open a money market account, be ready to maintain one thousand dollars or something like that, depending on your bank.
And number four difference: How to withdraw? A bank requires you to wait for a few days if you want to get your money back.
So, is a money market account a good way to build savings. Yes, it is.
Is it a good choice, if you want to have an opportunity to withdraw your money immediately, in one day or in two days? No, it is not. Saving account is better for that.
Bank of America, Wells Fargo, JP Morgan Chase, Citigroup – all these banks and thousands of other banks all over the United States offer money market accounts, because a money market account is a commonly used financial instrument in the US and other countries.
Before you go, I want you to know, that money market account equals to money market deposit account, equals to MMA or MMDA.
Thanks for watching this. Like this video, share it with Facebook, Twitter, post a comment if you have an experience with money market accounts.