Money market accounts are a type of savings account that can be opened at financial institutions were you do your day to day banking. These types of accounts may also be opened at banks that provide brokerage services.
Essentially all that is needed to open a money market account is an account at a financial institution and an initial deposit. A separate application with personal information and acknowledgement of account terms of service may also be necessary.
To open a money market account, one can either go to a bank in person or utilize online banking services. Some online banks may offer better rates on their money market accounts due to lower overhead costs of operating online.
When two or more accounts are grouped with other accounts under the same account number, they are insured together under the same Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance.
Before opening a money market account, it can be a good idea to be aware of the requirements and limitations of these accounts. For example, ‘Regulation D’, a U.S banking law contained within Title 12, Chapter 2 of the U.S. Code only allows a specific amount of withdrawals and transfers out of money market accounts.
Another thing to be aware of is that money market accounts may require varying amounts of minimum deposit. Some money market accounts may have no minimum requirement while others might have minimum deposits as low as $10 or as high as $25,000 depending on the services offered by a particular bank or credit union.
Interest payments on money market accounts are typically higher than savings accounts, and interest may be calculated more frequently. Higher deposit money market accounts offer better interest rates. However, in comparison to Certificates of Deposits and some Treasury Bonds, the interest on money market accounts is still relatively low.
These types of accounts, as most, are not protected from tax levies or court orders. However, if the money market account is held within a retirement plan it may be subject to certain tax restrictions such as deferred income tax. Also, depending on how the money market account is managed, interest may avoid income tax altogether.
The money earned through money market accounts is tied to economic cycle and other interest rates such as the London Interbank Offered Rate (LIBOR), the Prime rate or the Fed Funds Rate which is the cost of money for banks borrowing from the Federal Reserve. Money market accounts are considered reliable and safe places to put money.
Sources:
1. http://bit.ly/bd9p0d (NCUA)
2. http://bit.ly/diND3q (FDIC)
3. http://bit.ly/awWPeT (Regulation D)
4. http://bit.ly/bPiRKi (Office of Thrift Supervision)
5. http://bit.ly/cWdFy0 (Kravitz)