There are few passive investment vehicles that allow the account owner to be able to use their own money while earning interest on it. Certainly savings accounts are still around, but the interest rates are so low that they are almost not worth utilizing. Money market accounts make for an excellent alternative to savings accounts. Not only do they earn a better rate of interest, they come with a flexibility that is akin to a checking account. A money market arrangement is a great place to park income from other investments or to place monies for bills like property or income taxes.
On the surface, a money market account looks the same as a checking account. Funds can be deposited or withdrawn using checks, and the bank uses the funds for investment just as with a checking account. Account owners can also transfer money from account to account when they want. The difference with a money market is that the bank also pays interest on the funds that are deposited into the money market account.
The differences between the two types of accounts quickly become apparent due to the restrictions that come with money market accounts. What the account owner can and cannot do depends on the bank policies, but typically there are more restrictions on a money market than a standard checking account.
Users can withdraw funds from a money market, but there are limits on how many transactions per month. The average limit is six checks that can be written on an account. ATM withdrawals also have a limit, which the bank informs the account owner of when they open up a money market account.
Fees are also a large part of the account, even more than traditional checking accounts. Fees differ greatly in the banking industry, so shopping around for a bank that has little to no fees is in the best interest of the individual looking to park funds. The less in the way of fees there are leaves more money to accumulate interest.
Interest rates also vary greatly amongst banks, so again, shopping around is in the best interest of the investor. Pay attention to how often the bank compounds interest on accounts. Interest calculations can be done daily, weekly, monthly or quarterly. The more frequently the compounding, the better. Funds grow at a faster rate, which then gives incentive for the money market account owner to park their money and watch it grow.
Money market accounts are not necessarily going to make someone rich. What they do provide is a place to park money that earns interest, leaving something left over when a big bill has to be paid.