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What Is A Money Market Account?

Nov 12, 2007
A money market account can be a good way to maximize your cash, while keeping it safe. However, some consumers may not benefit as well from this type of investment as they would from other investments. This article examines some of the more common aspects of money market accounts.

Before delving into money market account issues, it is important to understand that these accounts are not the same as money market funds accounts. They are two different vehicles and knowing the difference is important.

"Money market" is a generic term that is used to describe the market in which banks and other financial institutions lend, borrow and trade money. With this being the basis of the term, a money market account is basically a premium account, or a high interest savings account.

A money market fund, on the other hand, is an investment technique and is more akin to working the stock market than it is to savings account holdings.

You can usually open a money market account by simply visiting your bank and setting up an account. The cash that you put into this account will then be invested by the bank into various financial instruments such as certificates of deposit or treasury bills. The investments that the bank participates in are almost always very safe investments. These are low risk, short term investments, and your gain for allowing the bank to use your cash is a premium interest rate. This higher rate can often be as much as two times higher than a typical savings account.

Protection of your money is a key element to a money market account and you should understand that a money market account that is hosted by your bank is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. However, if you decide to open a money market account with an entity that is not covered by the FDIC you can lose your money if that company or entity files bankruptcy.

It is not at all uncommon for corporations to offer what looks like a money market account and they will often offer higher interest rates than what you might find at your bank, but, again, be sure you understand the risks associated with this type of account.

Most money market accounts come with certain restrictions, and those restrictions can vary from one place to another. One restriction that is common is that your money, once it is placed into the account, may not be fluid. What this means is that you may not be able to walk in and withdraw it immediately. There may be a time lag and there may be a penalty. Also, most money market accounts require a minimum deposit in order to open the account. This minimum amount is set by the bank, and they may also impose a minimum balance that must be kept in the account at all times. You are allowed to withdraw money from your account but often there is a maximum amount you are allowed to withdraw in a 30 day period.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Saving Accounts and Mortgages.
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