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Money Market Deposit Account Basics

Safe, secure and conservative, money market accounts (MMAs) are proving to be an investment bright spot that can help you save more confidently in today’s volatile economy, say financial experts.

“With a sinking and volatile stock market, you’re seeing many consumers flock to money market deposit accounts,” says David Barr, a spokesman for the Federal Deposit Insurance Corp. in Washington, DC.

This is largely due to FDIC insurance currently covering up to $250,000 of assets per person, per bank, per deposit category. That’s a protection not generally available to holders of stocks, bonds or money market mutual funds.

“If you are now afraid of the stock market, and you don’t have the money to lose, a money market deposit account is what you should consider,” says Deborah Pavelka, a professor of accounting at Roosevelt University in Chicago.

In general, MMAs resemble a standard bank account, although many have a monthly or quarterly restriction as to how many times you can make a withdrawal or deposit, experts explain.

“But what they don’t have is the maturity date of a [certificate of deposit],” Barr says.
An MMA, when linked to a checking account at your current bank, can help you earn more interest on funds that would normally sit in low- or no-interest checking accounts. When you need cash in your checking account, you can transfer from one account to the other. If you're banking online, transferring funds is as easy as logging in.

Because they fill a niche between a standard savings deposit account and a certificate of deposit (CD), most MMAs offer interest rates that are slightly higher than a savings account while allowing easier access to your funds than a CD.

“So you have a product that offers a higher interest rate than a savings account but more flexibility than a CD,” Barr says.

As a result, an MMA can be extremely attractive to consumers who may only need to dip into their reserves a couple times a month, experts add. Overall, it is a simple and secure way to invest your funds.

“The deposit rates today [on MMAs] are very competitive,” Barr says.

Some of the best rates are available from online banks that pass on to customers the savings from not maintaining brick-and-mortar facilities. Many online money market accounts also offer perks such as check-writing privileges, debit cards and fewer fees, Pavelka says.

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