Money Market Account

What is the Money Market Account?

Money Market Account is a deposit account which pays the interest depending on the current interest rates and gives a secure place for keeping the fund and take advantage of the features like interest on deposits, writing checks and faster access to funds.

Money Market Account

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Features

  • Minimum Balance Requirement: There will need to maintain a specified amount as an average balance over the period of time.
  • Higher Interest Rate: Interest rates provided in such an account will be higher than the normal provided under a savings account or such an equivalent financial instrument.
  • Insured Accounts: Generally, It balances will be secured by the Federal Deposit Insurance Company (FDIC) and the National Credit Union Administration (NCUA).
  • High Bank Charges: There are high charges for non-maintenance of accounts or doing transactions more than the specified limit.
  • Limited Check Writing: One can do a very limited number of check writing transactions as compared to the Saving account.

Example of Money Market Account

In the market, various kinds of products in financial services are available. It is one of them. Mr. ABC wanted to invest the money for a shorter duration, but that proposal should be secured one that can fetch him a higher return.

So he approached Bank PQR to obtain the understanding of the account. So the bank explained in detail that this account would provide a better return with better security. Also, the bank explained about features and perks available with the account.

Mr.ABC placed in an account to invest them in it. Funds with the short term requirement, the bank will invest in the securities and gilt. The duration of such securities will be extremely shorter with a far better return than the normal money market. On maturity, such an account would receive the balance from the investment along with a better amount as a return. Also,

Pros

  • Better Interest: It gives a better rate of interest compared to savings.
  • Better Liquidity: In deposits, your funds will be blocked for the specified period of time; however, in this account, one can withdraw based on the requirement.
  • Highly Safe: Money market balances are insured by national institutions, and all the balances are in safe hand.
  • Daily Compounding: The best part of the money market account is daily compounding, and hence one can earn accumulating daily return, which will give better results compared to other account types.

Cons

Uses of Money Market Account

Uses-money market Account

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  • Emergency Usage / Usage of Last Resort: When an investor does not require funds in routine transactions and want to withdraw in an extreme situation, such accounts are the best place to invest.
  • Short Term Investment Horizon: For investors, who want a liquid investment with a higher return, this can give them good benefits.

Difference Between Money Market Account Vs. Money Market Fund

Generally, one can consider it and Money Market fund as a synonym, but in reality, it is not like that. Both are completely different products operating in a different environment and invested with different intent.

BasisMoney Market AccountMoney Market Fund
IndustryIt operates in the Banking Industry.Money Market Fund operates in Mutual FundMutual FundA mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks.read more/AMC industry.
SecurityIt’s Balances are fully secured.There is no security for the balances in the money market funds.
ReturnIt has a static rate of interest as a return.Money Market Funds return differs based on the market situation. So, there is no fixed rate of return.
Number of TransactionsIt has a minimum of 6 transactions allowed.Money Market Funds allows unlimited transactions at user discretion.
Timing RestrictionsIt allows transactions only during banking hours.The money market fund allows transactions throughout the day without any limits.

Difference Between Money Market Account and Savings Account

For a layman, both the accounts are the same. However, based on the nature and procedure of working, there exist a thin line of difference between them.

Let us understand the difference between both the accounts:

BasisMoney Market AccountSaving Account
Interest RateIt provides a preferential rate as compared to a savings account.A savings account provides a very low-interest-rate as compared to a Money Market Account.
Number of TransactionGenerally, only 6 transactions are allowed under it.Saving Account provides unlimited transactions for banking.
BalanceRequires minimum balance required to be maintained on an average basis over a specified time periodSuch a requirement is not there in Savings Bank Account.
Number of ChecksAround 6 check writing transactions are allowed in it.In a Savings account, there are no restrictions of check writing transactions.
Withdrawal LimitationsThere is no flexibility in withdrawal in the money market account.In the Savings account, flexibility is there in cash withdrawal.
InsuranceThey are fully secured by national institutions.There is no security for the balance in a savings bank account.

Conclusion

Money Market Account is a savings account with privileges like this account is insured and comes with higher interest rates; however, it is also limited with respect to check-writing capabilities and higher bank charges. In the financial market, in order to attract the customers, banks and NBFCs keep on coming with new products providing attractive features of the money marketMoney MarketThe money market is a market where institutions and traders trade short-term and open-ended funds. It enables borrowers to readily meet finance requirements through any financial asset that can be readily converted into money, providing an organization with a high level of liquidity and transferability.read more and advantages of such an account to the customers.

It is a completely different set of accounts as compared to a savings account or such other money market products like the certificate of depositsThe Certificate Of DepositsCertificate of deposit (CD) is a money market instrument issued by a bank to raise funds from the secondary money market. It is issued for a specific period for a fixed amount of money with a fixed rate of interest. It is an arrangement between the depositor of money and the bank.read more etc. However, before investing anywhere, the user must analyze the returns based on past trends and should also take professional opinion about the investment option.

Recommended Articles

This has been a guide to Money Market Account. Here we discuss Money Market definition, features, uses, advantages, and disadvantages along with examples. You can learn more about financing from the following articles –

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