What is a Money Market Checking Account?

N. Kalu

A money market checking account, also called a money market demand account, is one of the many types of interest-bearing accounts that banks offer to customers. When a customer deposits his or her money into this type of account, the money is invested in a money market over an extended period of time, usually from three months to two years. For customers who want to earn interest on their everyday funds, a money market checking account is a smart choice.

Checkbook.
Checkbook.

The minimum balance required to open such a bank account is higher than the balance required to open a regular checking account. A customer typically needs anywhere from $1,000 US dollars (USD) to $2,500 USD to start an account and begin accruing favorable interest associated with reasonable money market rates. The more money one invests into the account, the higher the annual percentage rate will be, due to the bank's tiered interest rate system.

It is important to note that a money market checking account holds certain restrictions on withdrawing money. An account holder can only withdraw cash from three to six times per month, and can only write up to three checks per month. This restriction is due to the fact that the bank lends the funds to people who pay the normal market interest rate. In other words, the funds are typically not physically available in the account. Financial institutions make a profit on money market accounts by earning the difference between the interest they charge to borrowers and the interest they pay out to money market checking account holders.

In the United States, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC). Banks backed by the FDIC are incredibly secure and reputable. Even if these financial institutions were to lose all investments and run out of money, the FDIC would refund money lost, up to a certain amount. Since its creation as an independent government agency in 1933, the FDIC has never lost money deposited or invested in one of its insured banks.

Investing frequently into a money market checking account is a key factor in successfully maintaining this type of bank account. The more deposits put into the account, the more money the account accrues for the holder. As a high-yield checking account, setting up automatic transfers into the new account is a sure way to increase the balance and maximize compounding interest rates.

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