What are money market accounts?

With so many banking accounts on out there, there are quite a few ways to earn interest on your money. In this post we will look through the money market accounts that are one of the most popular savings options, and if you aren’t familiar with their features, it’s probably time to learn more.

What is a Money Market Account?

A money market account is an interest-bearing account at a bank or credit union—not to be confused with a money market mutual fund. Sometimes referred to as money market deposit accounts (MMDA), money market accounts (MMA) have some features not found in other types of accounts. Most money market accounts pay a higher interest rate than regular passbook savings accounts and often include checkwriting and debit card privileges. They also come with restrictions that make them less flexible than a regular checking account. They are important for calculating tangible net worth.

Money Market Account Interest

When you put your money into a money market savings account it earns interest just like in a regular savings account. Interest is money the bank pays you so that they can use your money to fund loans to other people. That doesn’t mean you can’t have your money whenever you want it, though. That’s just how banks make money — by selling money! Basically, it works like this:

You open a money market account at the bank. The bank pays you interest on the money that you deposit and leave in that account.
The bank then loans that money out to other people, only they charge a slightly higher interest for the loan than what they pay you for your account.
The difference in interest they pay you verses the interest they charge others is part of how they stay in business. We’ll take a look at how the interest on money market accounts works in the next section.

Best Ways to Use a Money Market Account

Money market accounts are a great vehicle to use for pursuing both short-term and long-term savings goals. They allow you to separate specific money from your everyday bank account to save for the future. Money market accounts are an excellent bank account to use for:

Emergency funds
Wedding expenses
Vacation funds
Tax payments
Home renovation projects
Saving for a new car
Retirement savings
Other short-term savings goals
There’s no shortage of uses for a money market account.

Do your homework to help ensure you end up with the best money market account for your savings and banking needs.

 


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