Dave Says: What is a Money Market Account?

Dear Dave,

What exactly is a money market account?

Julie

Dear Julie,

Money markets are short-term financial instruments. Money market accounts pay about the same, maybe a little bit more, than traditional savings accounts. If you get a money market account with a bank, you’ve basically got a savings account that mirrors — or pays about the same — as the actual money markets.

Now, if you get a money market account with a mutual fund company, you’re actually buying into the money markets. The big difference is that the mutual fund companies are a lot more flexible, and they don’t have FDIC (Federal Deposit Insurance Corporation) insurance. 

I have my emergency fund parked in a mutual fund company money market account, and the great thing is that it’s fully liquid — meaning there are no penalties to take cash out at any time. It’s a perfect place to keep an emergency fund!

—Dave