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Ask Dave

What Is a Money Market Account?

Dave explains in plain English what a money market account is and how it works.

QUESTION: Julie asks Dave to explain what a money market is.

ANSWER: The money market is a short-term financial tool.  If you get a money market account with a bank, it will pay the same as the savings account is paying. 

If you get a money market through a mutual fund company, you’re buying into what the money market is at that point in time.  The only differences getting a money market through a mutual fund company is that they are more flexible and do not have FDIC insurance.  It’s a much better place to save because it’s going to pay at least 1 point more than a traditional savings account.

The money market through the mutual fund company will also earn what a 6-month or 1-year CD earns, but it is fully liquid, and you can even write checks out of it.  That’s why it’s a good idea to have your emergency fund set up in a money market.  You wouldn’t want to use this as your main checking account – it’s too cumbersome.  But if you had to write a check for an unexpected expense, you could without penalty.