How do money market accounts work

The only other thing is to remember to make regular deposits into your money market account and sit back and watch your money grow even faster! Sign up for our Newsletter! Mobile Newsletter banner close. Mobile Newsletter chat close. Mobile Newsletter chat dots. Mobile Newsletter chat avatar. Mobile Newsletter chat subscribe. Personal Finance. Financial Planning. How do money market accounts work? Banking Image Gallery When you put your money into a money market savings account it earns interest just like in a regular savings account.

See more banking pictures. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance.

Develop and improve products. List of Partners vendors. Banks offer a variety of options for our everyday banking needs and to help us save. While one option—the checking account—gives us the ability to make deposits, multiple cash withdrawals, make purchases, write checks , and do transfers, the savings account gives us a risk-free place to put our cash while the balance collects interest. But is there a happy medium? There is one type of account that offers the best of both worlds: The money market account.

But just what exactly is this type of account and how does it work? Banks created money market accounts MMAs to offer more competitive interest rates than those offered by traditional savings accounts.

But that doesn't come without a cost. The tradeoff for higher rates is often a higher minimum deposit requirement. Learn how to turn it on in your browser. So how does a money market account work?

Money market accounts work much the same as other bank deposit accounts, like savings or checking accounts. The idea is pretty straightforward: you put money in the account and the bank pays interest on your balance periodically according to the terms of the account.

Opening a money market account is simple, too. In most cases, you just provide your personal information, make an initial deposit, and the account is ready to use. Some banks have minimum deposit amounts or minimum balance requirements, but those vary by bank.

Many banks, including Ally Bank, offer the convenience of opening and managing your account online, anytime, anywhere you have internet access. Think of a money market account as a checking and savings account hybrid—an account that combines the features of both. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.

Measure content performance. Develop and improve products. List of Partners vendors. A money market account is an interest-bearing account at a bank or credit union—not to be confused with a money market mutual fund. Sometimes referred to as money market deposit accounts MMDA , money market accounts MMA have some features not found in other types of accounts. Most money market accounts pay a higher interest rate than regular passbook savings accounts and often include checkwriting and debit card privileges.

They also come with restrictions that make them less flexible than a regular checking account. They are important for calculating tangible net worth. Money market accounts are offered at traditional and online banks and at credit unions. They have both advantages and disadvantages compared with other types of accounts.

Their advantages include higher interest rates, insurance protection, and check writing and debit card privileges. Banks and credit unions generally require customers to deposit a certain amount of money to open an account and to keep their account balance above a certain level. Many will impose monthly fees if the balance falls below the minimum. Money market deposit accounts also provide federal insurance protection. Money market mutual funds generally do not. Potential disadvantages include limited transactions, fees, and minimum balance requirements.

Here is an overview:. One of the attractions of money market accounts is that they offer higher interest rates than savings accounts. For example, in September , their average interest rate was 0. The highest money market account rate was 1. When overall interest rates are higher, as they were during the s, s, and much of the s, the gap between the two types of accounts will be wider.

Money market accounts are able to offer higher interest rates because they're permitted to invest in certificates of deposit CDs , government securities, and commercial paper, which savings accounts cannot do. The interest rates on money market accounts are variable, so they rise or fall with inflation.

How that interest is compounded —yearly, monthly or daily, for example—can have a substantial impact on the depositor's return, especially if they maintain a high balance in their account. Unlike savings accounts, many money market accounts offer some check writing privileges and also provide a debit card with the account, much like a regular checking account.