Money Market Account FAQ
Banks use the money from money market accounts to invest in low-risk investments such as certificates of deposit and Treasury bills. Banks offer higher interest rates on these accounts, relative to their other savings accounts, to reward people for providing them with investment capital. Money market accounts at banks and credit unions are insured, so account holders don't have to worry about losing money.
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Role in Investing
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Along with banks and credit unions, some corporations also offer money market accounts. Many investors include money market accounts in their portfolios because they offer a guaranteed rate of return. That can help reduce volatility in their investments.
Accounts Versus Funds
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A money market account should not be confused with a money market fund, a mutual fund that invests in government or corporate securities. While such a fund is considered a relatively conservative investment, some level of risk is still involved. This is not the case with a money market account, which offers a guaranteed rate of return.
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Restrictions
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Money market accounts have account minimums that are generally higher than the minimums for standard savings accounts. Also, there are limits on how many withdrawals the account holder can make per month. Banks may not allow account holders to write checks on money market accounts, but some banks offer limited check-writing privileges.
Insurance
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Money market accounts at banks are ensured for up to $250,000 by the Federal Deposit Insurance Corporation. They will be ensured at this level until Jan. 1, 2014, at which time the maximum insured amount is scheduled to return to the previous level of $100,000. Accounts at credit unions are insured for the same amounts by the National Credit Union Administration. Corporate money market accounts are not insured.
Opening an Account
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Most banks and credit unions offer money market accounts, as do many online banks.
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