Pros & Cons of Money Market Deposit Account
If you're considering the advantages and disadvantages of putting your cash away in a money market deposit account, then the best thing to compare it to is a savings account.
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MMDA
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The main difference between a money market deposit account (MMDA) and your bank's generic savings account is that the interest rate changes on a weekly basis with a money market account (see Resources). Other than that, they are very similar.
Higher Rates
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Because money market accounts are based on the current market rate of interest, which can be found on most personal finance websites, the rate of return is typically higher than a savings account whose rate will not vary at all.
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Liquidity
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In addition to higher rates, you will also have similar access to your money as with a savings account. This means that you will be able to write checks and withdraw money.
More Money Down
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If you anticipate needing a healthy portion of your savings at any time, however, don't go with the money market account. They can sometimes require you to maintain a higher balance than your savings account, and will penalize you if it drops below the minimum.
Repeated Access
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If you need to withdraw money often, go with a checking account. Money market accounts will generally only allow you to write checks a few times per month. Just remember, the more money you take out of a savings account, the less compound interest you're going get.
Other Options
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Once you feel comfortable with the money market account, start looking into certificates of deposits and mutual funds. Investment-wise, they are the next step up from a money market account, and could possibly pay more interest.
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