What Is a Money Market Savings Account?

What is a money market savings account? Essentially, the money market savings account is a hybrid banking product. It provides the functions and security of a traditional savings account, but also offers additional features. Increasingly, banks are developing new financial products to accommodate what consumers need and want.

The traditional savings accounts are where funds, which won’t be needed in the short term, are deposited. There, funds do earn interest. However, in the current low-interest environment, that usually is not very much. The Federal Deposit Insurance Corporation (FDIC) guarantees the money will be returned to depositors no matter what might happen to the bank.

Money market savings accounts include all of that, but also are structured to provide what might be considered “perks.” Those are what make this product attractive.

The chief perk is usually a higher interest rate than is available with conventional savings accounts. In exchange, the terms and conditions could require a relatively high minimum deposit and high monthly balance. Going beneath that could incur penalties. That means this is only an option for those who, at the time, do not plan on needing access to the amount of money required to be maintained.

Another special feature of the money market savings account is the ability to write a limited number of checks monthly. Most savings accounts do not have that perk. Check-writing eliminates the need to transfer funds from a checking account.

As with traditional savings accounts, money market accounts can be linked to checking to prevent overdrafts. With both, there could be a maximum number of deposits and withdrawals allowed each month. Unlike checking accounts, these are not highly liquid. Depositors also have to read the fine print on what transactions, such as access to funds from ATMs, including out of network ones, are free of charge and which incur fees.

Consumers would be wise to “shop around” at a variety of banks for the best deal for their own unique needs. In order to keep the monthly minimum balance low, they may be willing to accept a lower rate of interest.

Shopping around will also introduce them to the range of options for money market savings accounts. For instance, the online or Internet banks could be offering interest rates higher than brick-and-mortar banks, with a lower initial deposit and lower monthly minimum balance. Online banks can afford to do that because, without physical real estate and staff, their operating expenses are lower than those of brick and mortar banks.

In addition, given the competition among banks for new customers and to prevent losing current ones, there are usually introductory or teaser offers. They could include a higher than average interest rate on money market savings accounts. However, the terms and conditions, which must be read carefully, usually specify that will only be in effect for a limited period.

Now you don’t have to ask yourself, “What is a money market savings account?” because you know!

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