What is a Money Market Account?

A money market account is basically a premium savings account. It is a type of deposit account offered by banks and other financial institutions which pays a rate of interest usually higher than a standard passbook savings account.

Money market accounts are often included with brokerage accounts as a more liquid place to store funds which are not currently invested in a stock, bond or mutual fund.

Money market accounts are able to offer higher interest rates than standard accounts because they aren't quite as liquid as a regular checking or savings account. This is because banks and other financial institutions usually take the funds deposited in money market accounts and use them to buy short-term investments like T-bills (Treasury Bills), or Certificates of Deposit. These investments pay slightly higher returns, so the money market account is able to pay a slightly higher rate of interest.

The tradeoff is that funds deposited in a money market account have some restrictions. Often these accounts require a minimum deposit to open and a minimum balance to maintain, very much like a Certificate of Deposit, except that money market accounts are usually a little more liquid than a CD.

Money market accounts offered by banks are almost always insured by the FDIC, just like any other standard bank account, so they are quite safe. Some money market accounts offer the ability to write checks in addition to allowing a certain number of withdrawals each month while still offering a higher interest rate, so they can be convenient places to save money while still providing access to the funds if necessary.