Next video:
Loading the player...

A money market account is an interest-bearing account that pays a higher interest rate than a savings account, and gives the account holder limited check-writing ability. It combines the benefits of savings and checking accounts, but usually requires account holders to maintain a higher balance in exchange for the higher interest rate.

Summer has checking and savings accounts at her bank, but the checking account pays 0.5% interest and the savings account pays 1% interest. She doesn’t write many checks, her average daily balance is $5,000, and she wants to earn a higher interest rate without taking on more risk. She learns that her bank offers a money market account, which lets her write up to six checks per month and requires a minimum balance of $2,500. It’s FDIC-insured, like her checking and savings accounts, but pays 1.5% interest.

Summer decides to close her savings account and move most of her money into the money market account. She keeps some money in her checking account to pay her bills. The interest Summer earns on her money market account is taxable, but so was the interest she earned from her savings account. The bank invests her deposits in low-risk assets like certificates of deposit, U.S. Treasuries and commercial paper.

Money market accounts are widely available through banks and other financial institutions. When Summer makes her annual contribution to her Roth IRA, she learns her brokerage has a better money market account paying 1.9% interest, so Summer moves her money again. Her brokerage operates online and has lower overhead than her bank, so it can afford to pay account holders a better interest rate. Even though Summer’s new money market account is with a brokerage, it is still FDIC-insured, and her money is still invested in low-risk assets.

Related Articles
  1. Investing

    A Guide to Bank Accounts

    Find out which type of bank account suits your specific needs.
  2. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  3. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  4. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  5. Investing

    Money Market Accounts with the Highest Interest Rates

    Money market savings accounts can offer higher interest rates than regular or even high-yield bank savings accounts – and perks like these.
  6. Personal Finance

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  7. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  8. Personal Finance

    5 Ways to Help Your Child Stay on Track With Money

    Here are five ways to help your child stay on track for her future.
  9. Personal Finance

    5 Mistakes You're Making With Money Market Accounts

    Money market accounts can be helpful "parking spots" for investors. Here are five key things to keep in mind when opening an account.
Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  3. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  4. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  5. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  6. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
Trading Center