Part 1: What is a Money Market Account, When Should it be Used
Part 2: Advantages and Disadvantages of Money Market Accounts
Introduction to a Money Market Account for Kids and Teens
This video explains the concept of a money market account in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about money market accounts, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is a Money Market Account
- When should money market accounts be used
- Pros / advantages of a money market account
- Cons / disadvantages of money market accounts
What is a money market account?
A money market account or MMA, also known as money market deposit account (MMDA), is an interest-paying account offered by banks and credit unions.
It combines the benefits of both savings and checking accounts, by offering the earning potential of a savings account along with the flexibility and convenience of a checking account.
It usually pays more interest than a regular checking or savings account, with some accounts offering tiered interest rates tied to the balance maintained – higher the account balance, higher is the rate of interest.
When should I use MMA?
MMAs are a good choice for short term goals like building an emergency fund or saving for an upcoming vacation. When you need money in the near future, you cannot risk it in the stock market but you can earn more interest than just a regular savings or checking account.
It is also a good choice for someone who is weighing investment options but would like to earn some interest instead of just letting cash sit around.
While they are a safe option to park funds temporarily, they have limited earning potential and hence should not be used for any long term financial goals like retirement, kids’ education, etc.
If you are looking for a safe way to park your cash while enjoying the convenience of being able to use the money on occasion, and don’t mind maintaining a minimum balance to earn higher interest, it could be worthwhile to open an MMA.
What are the advantages of money market accounts?
The main advantage of money market accounts is that they usually offer higher interest rates than standard checking and savings accounts.
Unlike traditional savings accounts and Certificate of Deposits (CDs), they make it easier to withdraw, deposit and transfer money. Often, you can write checks, and use a debit card at ATMs or to make purchases, although there could be some restrictions on the number of transactions.
MMAs are also covered by federal insurance protection – MMAs held at banks are insured by the Federal Deposit Insurance Corporation (FDIC) while those held at credit unions are insured by the National Credit Union Administration (NCUA), making your money 100% safe up to $250,000.
Are there any disadvantages?
Money market accounts often require a minimum initial deposit amount to open, and minimum balance requirements to maintain the account.
They can impose fees if you don’t meet the minimum balance, which is important to keep in mind.
Although the Fed has removed the restriction on withdrawals and transfers from MMAs, individual banks can still impose restrictions on the number of transactions made in MMA and charge a fee for each additional transaction. Some MMAs also have an ongoing account maintenance fee.
Even with the higher interest rates, they could still pay less than some high-yield savings accounts or Certificate of Deposits (CDs).