What is the Money Market Account?
Money Market Account is a saving 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 money market and advantages of money market account to the customers.
Technically, Following are features of money market:
- 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 account will be higher than the normal provided under savings account or such equivalent financial instrument.
- Insured Accounts: Generally, It balances will be secured by Federal Deposit Insurance Company (FDIC) and the National Credit Union Administration (NCUA).
- High Bank Charges: There are high charges for non-maintenance of account or doing transactions more than the specified limit.
- Limited Check Writing: One can do a very limited number of check writing transaction as compared to 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 higher return.
So he approached, Bank PQR to obtain the understanding of the account. So the bank explained in detail that this account will 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 normal money market. On maturity, such account would receive the balance from the investment along with a better amount as a return. Also,
Following are advantages of Money Market Account:
- 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 Money Market 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 accounts types.
Following are disadvantages of Money Market Account:
- Minimum Balance: Based on the financial institution’s minimum balance requirement, the account holder will have to park minimum funds in the accounts.
- Limited Check Transaction: Biggest drawback in such account is a limited number of transactions, as a result, a user may face a sometimes liquidity crisis.
- Less Regulated: Money market is less regulated. So, institutions based on their requirement will keep charges, minimum balance requirement, etc, which will affect the financial transactions of the user.
- Higher Charges: It requires a minimum balance requirement or a limited number of transactions. If one is exceeding the prescribed limit, then higher charges will be levied as compared to the normal savings account.
Uses of Money Market Account
- 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 product operating in a different environment and invested with different intent.
Let’s understand the difference between Money Market Account and Money Market Fund:
|Basis||Money Market Account||Money Market Fund|
|Industry||It operates in the Banking Industry||Money Market Fund operates in Mutual Fund/AMC industry|
|Security||It’s Balances are fully secured||There is no security for the balances in the money market funds.|
|Return||It 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 Transactions||It has a minimum of 6 transactions are allowed||Money Market Funds allows unlimited transactions at user discretion|
|Timing Restrictions||It allows transactions only during banking hours.||Money market fund allows transactions throughout the day without any limits.|
Difference Between Money Market Account and Savings Account
For a layman, Money market account and Savings account are same only. 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:
|Basis||Money Market Account||Saving Account|
|Interest Rate||It provides 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 Transaction||Generally, only 6 transactions are allowed under it||Saving Account provides unlimited transactions for banking|
|Balance||Requires minimum balance required to be maintained on an average basis over a specified time period||Such requirement is not there in Savings Bank Account|
|Number of Checks||Around 6 check writing transactions are allowed in it||In Savings account, there are no restrictions of check writing transactions|
|Withdrawal Limitations||There is no flexibility in withdrawal in the money market account||In Savings account, flexibility is there in cash withdrawal|
|Insurance||They are fully secured by national institutions.||There is no security for the balance in a savings bank account.|
It is a completely different set of account as compared to a savings account or such other money market product like the certificate of deposits 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.
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 –