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What Is a Money Market Account?

Banking, Savings Accounts
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What Is a Money Market Account? Should I Get One?

A money market account is like your basic savings account’s more mature sibling. If you’re looking for a safe place to deposit and earn better interest on a large chunk of money, it might be worth consideration.

Here’s a look at what money market accounts are, how they differ from regular savings accounts and when it makes sense to own one.

What is a money market account?

A money market account is a type of savings account, with the same protections and generally a slightly higher interest rate. The trade-off? There’s usually a higher minimum balance requirement.

Some money market accounts also have limited check-writing and debit card features. But because these are a type of savings account, they fall under the Federal Reserve’s Regulation D, which limits the number of so-called convenient transactions — including checks, debit card swipes and online transfers — you can make to just six per month.

These are different from money market funds, which are investments that can lose value if the market falls. Money market accounts, on the other hand, are backed by the Federal Deposit Insurance Corporation (at banks) and the National Credit Union Administration (at credit unions), up to $250,000 per depositor.

» MORE: NerdWallet’s best money market accounts

When should you consider one?

Don’t expect to see quick gains on any of the four primary types of bank accounts: checking, savings, money market and CDs. Other investment options are better suited to that end, although not everyone feels comfortable with the volatility of the stock market.

The situation where a money market account is your best option is fairly specific. It’s a good choice if you want:

  • The safety of a bank or credit union.
  • A higher interest rate.
  • Access to funds in a pinch.
  • The ability to write a few checks.

If any of those aren’t true (and sometimes even then), you can find better alternatives elsewhere.

For example, if you want growth but greater access to your money, you may be better off opening an interest-bearing checking account. If you don’t care about writing checks, you can find comparable or better rates with some high-yield online savings accounts. And if you just want the bank account with the highest return and can afford to set this money aside for months or years, try a CD.

You could use a a money market account for an emergency fund. Like a basic savings account, it’s separate from your daily use, but the money market account might grow a bit faster and you can write a check from it to cover whatever surprise arises.

» MORE: Checking, savings, CD or money market account?

What to look for in a money market account

The best money market accounts come with high yields, low minimum balances, few fees and the right amount of access to your funds. Shop around to find the best rates and evaluate what different banks and credit unions, in your area and online, are offering.

A money market account can be a good place to park your cash. There are some limitations, but it’s a option worth considering if you want to see your money grow in a safe environment.

This post was updated. It was originally published on Nov. 8, 2012.

Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @margarette.

Image via iStock.