What is a Money Market Account?

The term money market is a generic one that describes a place where the banks and other financial institutions lend, borrow and trade in money, certificates of deposit, and other financial instruments.

A Money Market account is a premium or a high interest savings account. It is also called an MMA and should not be confused with a money market fund. A money market fund is an investment venture which has larger returns than a premium savings account. Opening a money market account is a very simple procedure at any bank.

The money you will keep in this account will be invested but this investment will be done by the bank or the financial institution where you have the account. The money is put in things like CDs or certificate of deposits and Treasury Bills etc. These are low risk and short term investment schemes. The reward that you get for letting the institution invest your money is a higher interest rate than the usual passbook account that you have.

Like all other bank accounts a Money Market Account is also insured by the Federal Deposit insurance Corporation for upto $100,000. If you wish to go in for such an account offered by a big corporation then remember that the FDIC does not insure their accounts and if this company files for bankruptcy then you will loose your money.

Although a Money Market Account is a low risk investment but for precisely this reason it will have some restrictions. The money will not be as liquid as it is in a normal savings bank account and also you will need to have a minimum balance. Withdrawals are allowed in this account but upto a limited number. The amount that you withdraw at one goes or in a series should not reduce your minimum balance or you will have to face penalties.