What is a Money Market Account?

A money market account is another type of saving account that a bank or credit union offers, but it has a few differences. Money market accounts usually pay more interest but the balances required are typically higher. Also, most money market accounts allow you to withdraw funds only three to six times each month; And, unlike other saving accounts, you can write up to three checks per month with most money market accounts.

Considerations

If you are considering opening a money market account, understand that the interest banks and credit unions pay on them vary, because some institutions are more anxious to attract your deposits than others. Also, many banks and credit unions will pay you more interest if you keep more money in your account. And, the rates that institutions pay on money market accounts can be changed without notifying you. Finally, many institutions will charge you a fee, often $5, if you fail to maintain a minimum balance or you exceed its limit on withdrawals. If you are interested in opening an account, check with several banks to see its ground rules.

Benefits

All money market accounts at banks are insured currently up to $250,000 by the Federal Deposit Insurance Corporation, an independent agency of the federal government. If you have a money market account at a credit union, it is insured by the National Credit Union Administration, also a federal agency. Not only do money market accounts pay higher interest, they are safe. In addition, most institutions pay what is called "compound interest" on your money market account. That means it pays interest on the interest you have already received.

Features

Each month, you will receive a statement that sets out the transactions that have taken place during the preceding month, along with the fees you have been charged. Be sure to see that the deposits and withdrawals listed on the statement agree with your records, and that you reduce your balance by the fees.

Potential

Because money market savings accounts pay more interest than regular savings accounts, they have become especially popular for people who are saving for their retirement. Since the so-called Baby Boom Generation has begun to retire, the future for this type of bank account is very bright. Also, during difficult financial times, many investors will choose to leave the stock market and put their money away in a money market fund until the economy improves.

Effects

To take full advantage of the improvement in rates of interest paid on your money market account, make regular deposits to it. Then rest in knowing that your account is growing quickly, and there will come a day when you can relax and enjoy your wealth.