What is a Money Market Account and How Does It Work?

Posted on January 23, 2019

female banker shaking hands with customers sitting at a desk

When it comes to handling your finances, at some point you’re going to want to grow what you have. How aggressively you decide to grow depends on your risk profile, but no matter how you want to do it you have several options to build wealth.

Some of these options, like a savings account, are very conservative and safe but generate less return. Other options, such as investing in stocks through a brokerage account, are a bit more aggressive and take on more risk while generating more return.

Picture a spectrum. Place a savings account at the far left end and a brokerage account at the far right end. You have options all along that spectrum. One option that allows for more return than a savings account is a money market account.

Defining a Money Market Account

A money market account (MMA) is an account in which you gain interest like a savings account (often at a higher rate), with more limited checking abilities than a standard checking account.

Money in a MMA, just like in a savings account is “borrowed” by the bank, and repaid with a small amount of interest. Typically, the interest rate with a MMA is higher than a savings account, but not always.

For this reason, a MMA often requires maintaining a higher minimum balance than a savings account. But, it’s insured by the FDIC, so it’s a lot less risky than investing that money in an equity or brokerage account.

As previously mentioned, MMAs offer limited checking ability. You can generally access your money without penalty a couple of times over a given period of time if you need it. At Peoples Bank, you can electronically transfer or withdraw money from your MMA six times per monthly statement cycle giving you the flexibility you need to get access to your money in emergency situations unlike investing in a certificate of deposit (CD) or a brokerage account.

When Should I Get a Money Market Account?

Is an MMA right for you?

A money market account tends to be a good fit for people if:

  • Their bank offers a higher interest rate on MMAs than savings accounts
  • They need money in a pinch from their savings
  • You want to grow a larger amount of money while still having it insured

In short, if you have a large amount of money - enough to clear the minimums at your bank - and you want to earn more interest than a savings account while still having access to it, a money market account may be a good fit for you.

Peoples Bank offers a wide variety of savings accounts, including MMAs. Contact us to learn more or visit your nearest local branch.