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What is a Money Market Deposit?

Mary McMahon
Updated May 16, 2024
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A money market deposit account is a type of savings account which is designed to be highly liquid. Depositing funds in such an account allows people to create a savings account which earns interest and is very low risk, as funds deposited in money market accounts are insured by the government. Many banks and investment firms offer money market deposit accounts to their customers, with interest rates which can vary, depending on the institution and the current economic conditions.

Several restrictions are usually placed on a money market account. Most have a high minimum deposit requirement which is intended to ensure that depositors deposit enough funds to make the maintenance of the account profitable for the bank. There may also be transaction limits on the account which are part of the financial regulations which distinguish between checking and savings accounts. However, customers can usually draw checks on a money market deposit account, and use the account much like they would use a regular checking account.

The interest rate on a money market deposit account is higher than that for conventional savings and checking accounts, but it is lower than many other types of investment accounts. People may choose this investment option because they want security and flexibility, and are willing to sacrifice some interest earnings to achieve these goals. A riskier option is a money market fund, in which a fund sells shares which are used to buy securities, with the profit from the securities being distributed to shareholders. Money market funds are not insured by the government, making them a more dangerous investment.

When looking at the money market deposit accounts offered by various financial institutions, there are several things to take into consideration. Investors should definitely compare interest rates and find out whether the rates are fixed or fluctuating, and how long the interest rates will be guaranteed. They should also familiarize themselves with the minimum deposit requirements, the fees which may be charged if the balance dips below those requirements, and the transaction restrictions placed on the account.

A great use for a money market deposit account is as a holding place for funds recently realized from the sale of investments or the settlement of an estate. The funds will earn some money in the money market account, but they will also be very easy to access if necessary, and they are guaranteed by deposit insurance. For long term investments, other types of investment accounts can yield more income.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By Bhutan — On Sep 18, 2011

So I'm just starting to get to where I have some savings, and I was wondering if a money market deposit would be a good way to go. I mean, reading the article it seems like it has some good benefits, but are there any really bad downsides? Also, how much money should I have to start one of these things?

By icecream17 — On Sep 18, 2011

I used to have a money market savings account but my credit union introduced a high yield checking account that I preferred instead. The money market account rates were really low. They were no better than the certificate of deposit rates so when they introduced this new checking account I decided to give it a shot.

It offered an APY of 1.5% which is higher than most CD’s and the nice thing is that there was no minimum balance, but there were account requirements. For example, I had to use my debit card twelve times a month, submit one direct payment and agree to accept electronic bank statements via email instead of receiving my statements through traditional mail.

They also had a deposit limit of $25,000. Since this was a checking account I could write as many checks as I wanted. With the money market savings there are restrictions on how many checks I couldn write. My bank only allowed a money market account holder the ability to write three checks per month.I also did not like this restriction.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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