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.

  1. No results found.
Related Articles
  1. 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.
  2. Investing

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  3. Retirement

    Retirement Savings: How Much Is Enough?

    While the recommended savings rate has historically been 10%, indications are that today, most Americans are putting away less than 5%
  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

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  7. 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.
  8. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center