Money Market Accounts 101: Could This Savings Vehicle Work For You?

If you wish to place your money into an interest-bearing account until you decide whether and how to invest it elsewhere, the money market account (MMA) offered by your credit union may be a good option.

Money market accounts offer a compromise between savings and checking accounts. The vehicles do grow your money — sometimes more than other deposit vehicles — and financial institutions offer a number of different terms and interest rates if you shop around. But they differ from savings accounts in that they offer the limited use of checks and debit cards if you need to get at your money while you’re on the go. That can be mighty convenient if you need funds at a moment’s notice to cover an emergency or unexpected large expense.

They also offer consumers full security, since they're insured by the National Credit Union Administration (NCUA) for credit unions or the Federal Deposit Insurance Corporation (FDIC) for banks.

In recent years, money market accounts have been somewhat unexpectedly popular in the U.S., logging record consumer deposits in the trillions of dollars, according to Dan Geller of Market Rates Insight.

“It has to do with uncertainty about the economy among consumers,” says Geller. “That’s where they like to park their money until they figure out which way they want to go.”

If you're considering establishing a money market account, here are other factors of which to be aware:

• Cash withdrawals on MMAs are typically unlimited.
• Most credit unions and banks limit the checks/debit card withdrawals you can make on money market accounts to three to six per month, a number set by the Federal Reserve. If you exceed that, you'll likely receive warning notices from your bank, and if you don't stop, your institution will be required by law to switch your MMA into a checking account.
• MMAs typically require a larger minimum deposit than savings accounts, oftentimes a number in the thousands of dollars. If you fall below that minimum, you're often charged a monthly fee.
• MMAs can be perfect for continuing to generate interest on money you're likely to need in the near future, such as tax payments, mortgage payments or tuition.
• MMAs are not to be confused with money market funds, which are mutual market funds that buy securities. Money market funds are riskier and are not insured by the NCUA or FDIC.
• MMAs provide a way for credit unions and banks to offer depositors attractive market interest rates so the institutions can compete in the free market. Prior to the early 1980s, the government set a cap on the rates the institutions could offer; that became problematic as consumers went elsewhere and banks and credit unions found their deposits dwindling. Congress stepped in to help by removing the cap through the Garn-St. Germain Depository Institutions Act of 1982.

Depending on your goals and priorities, an MMA may be just the ticket for making your money work for you.

"In recent years reward checking, interest checking accounts and online banks have become more popular and offer the same benefits," notes Justin Pritchard on TheBalance.com. "But sometimes you’ll get a better deal from a money market account."