What Is A Money Market Account?

If you visit your local bank, you might advertisements for money market accounts. You might be familiar with CDs, checking and savings accounts, but money market probably sounds fancy and exotic. Fortunately, they’re not.

I think of money market accounts as a hybrid between a savings account and a checking account. They give you a higher interest rate than a checking account with the ability to write three to six checks a month. They usually will have higher minimum balance requirements and restrict the number of withdrawals per month. They are like a lower interest rated savings account with checkwriting previlieges. They are FDIC insured, principal protected, and give you the best of both worlds.

Money market accounts were really popular before the rise of online savings accounts and electronic transfer of funds. In the past, if you had a savings and checking, you would have to visit a branch to transfer funds between the two. It was more convenient to use a money market account to write checks than go to a branch, transfer money from savings to checking, and then write a check.

Nowadays, I don’t see much value in money market accounts but they sure were popular in the 80’s.

Do you have a money market account? If so, can you name any other benefits or drawbacks to them over alternatives?

Jim writes about money matters at his personal finance blog Bargaineering.com.

Photo: armydre2008)