What is a Money Market Account?

//What is a Money Market Account?
What is a Money Market Account? 2017-10-06T00:39:27+00:00

Definition: A money market account is a special savings account where funds are invested in the money market to get higher-than-average interest rates.

What Does Money Market Account Mean?

What is the definition of money market account? The Garn–St. Germain Depository Institutions Act authorized the use money market accounts in 1982. This constituted a change in the way individuals and companies saved their money because MM accounts provide a more competitive interest rate by giving the clients access to a previously non-accessible market, such as the money market.

These accounts typically require a minimum balance and have some limitations in terms of withdrawing and transferring money. Some of these limitations are: a limited number of withdrawals per month, either through checks or direct withdrawals; also, if the account balance goes below the minimum required by the bank, there will be a maintenance fee.

MM accounts are typically highly liquid since the deposits are invested in short-term securities. They are also typically insured by the FDIC.

Here’s an example.

Example

Mr. Hansen wants to increase his overall return on his savings, but he doesn’t want to make risky investments. He just wants a low risk investment that produces higher returns than a regular savings account. He decided to talk to his banker, Mr. Garcia, from First Bank of America. Mr. Garcia told Mr. Hansen that he should open a MM account. Is this account the right decision for Mr. Hansen, according to his investment goals?

Our concept of what a MMA is stated that these accounts offer higher-than-average interest rates, so that part is covered. Now what about the low risk requirement? Since the account is insured by the FDIC and the funds are placed in highly-liquid, short-term investment, the risk of losing money on these accounts is really low. This means that this type of account will be the right fit for Mr. Hansen.

Summary Definition

Define Money Market Accounts: MMA means a type of savings account that the deposits are invested in the market to get a higher return than a traditional savings account.