Legal Definitions - money-market account

A money-market account is a type of savings account offered by banks and other financial institutions that typically pays a higher interest rate than a standard savings account. While it offers competitive returns, similar to money market funds, it usually comes with certain restrictions, such as a limited number of withdrawals or transfers allowed each month. This type of account is designed for individuals or businesses who want to earn more interest on their savings while still maintaining some level of access to their funds.

• Example 1: Saving for a Short-Term Goal

  Maria is saving for a down payment on a new home she plans to purchase in about two years. She has accumulated a substantial amount and wants her money to grow faster than it would in a regular savings account, but she doesn't want to lock it away in a certificate of deposit (CD) because she might need to access some of it sooner for closing costs or unexpected home-buying expenses.

  She opens a money-market account. This account offers a better interest rate, helping her savings grow more quickly towards her goal. She knows she might need to make a few transfers to her checking account for home-related expenses, but she doesn't anticipate needing to make daily or weekly transactions, so the typical monthly transaction limit is not an issue for her.

• Example 2: Building an Emergency Fund

  John wants to establish a robust emergency fund to cover unexpected expenses like car repairs, medical bills, or a period of unemployment. He wants this money to be readily available if a true emergency arises, but he also wants it to earn a decent return while it's sitting there, and he wants to avoid the temptation of spending it on non-emergencies.

  John deposits his emergency savings into a money-market account. The higher interest rate helps his fund grow over time, providing a small boost to his financial security. The limited number of monthly transactions acts as a slight barrier, making him think twice before withdrawing money for non-urgent reasons, thus preserving the fund for its intended purpose.

• Example 3: Temporary Holding for Business Funds

  A small consulting firm, "Innovate Solutions," receives a large payment from a client for a project that will span the next four months. The firm needs to pay its contractors and cover operational costs over this period but doesn't need all the cash immediately. They want to earn interest on the portion of the funds not yet spent, rather than letting it sit in a low-interest checking account.

  Innovate Solutions deposits the client payment into a business money-market account. This allows the firm to earn interest on the substantial balance while it waits to disburse funds. They can make the necessary monthly payments for contractors and suppliers, staying within the typical transaction limits, and benefit from the higher yield compared to a standard business checking account.