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.