How does a money market account work?

[sandmanwake]

What is it and can you lose money on it?

 

[BassDominator]

It's like a checking account but it bears interest. No, you can't lose money on it. You usually have to keep a fairly high minimum balance and don't get to write very many checks per month.

 

[fragarific]

It is like a savings account although it is only through stock brokers and give out a much higher annual percentage rate than the accounts at banks. It is not backed by our government that we will get our money back.

 

[glenn1]

Money market (MM) accounts (which in turn invest in MM funds, which are simply pools of investment money) put money to work in the form of loans, that is, into short term bond obligations, or loans to corporations and governments. Generally, these bonds are very short duration, 90 days or less, and the vast majority are even shorter than that, generally 7 days or even overnight. Loans to governments are known as either Treasury obligations or municipal obligations, depending on what government entity is doing the borrowing. Short term loans to corporations are generally known as corporate paper, which has a maximum term of 270 days.

MM accounts are very safe. They are designed to invest in high quality items, from only the strongest financial organizations. Generally, they are restricted to at least Aa rated issues, often Aaa only, and absolutely none invest in more speculative quality issues (called "junk" or "high-yield" bonds). In theory, one could lose principal in a money market account, but in reality, the chances of it are essentially nil. To put it in a bit of perspective for you, MM funds have been around for almost 100 years, and i'm not aware of a single one ever losing principal. They are safe investment vehicles by nature, that's why their returns are relatively low.

So, go ahead and put your money away in a MM account, you're completely safe.

 

[Ariel]

I have a money market account. Just as others have said, it bears interest. I have to maintain a $1000 balance (or close to that - I honestly can't remember) but I only get to write 3 checks per month and they must be over $500. The checks even say "not valid for less than $500".