Money market accounts can be a little difficult to pin down in a definition, but ironically, their in-between nature may be what makes them the best solution for your needs. After all, just like Goldilocks, sometimes a banking customer needs a choice that represents the "just right" middle ground between other options.

Money market accounts combine some elements of checking accounts with those of savings accounts. In essence, you are a good candidate for a money market account if you have a large and stable amount to deposit, and have few occasions to access your cash from month-to-month, or tend to have infrequent unpredictable needs that exceed what you would ordinarily keep in a checking account.

Access and Interest

Money market accounts fall somewhere between checking and savings because they offer some amount of regular access to your money and a reasonably competitive rate of interest. You may even be able to use tools like a debit card or an ATM to access cash in a money market account.

There are typically two restrictions involved which make it possible for these accounts to offer what might seem like the best of both worlds. One restriction is on the number of third-party transactions, which is one of the ways money market accounts differ from checking accounts--you can't write an unlimited number of checks out of the account.

The other common type of restriction is a minimum balance requirement. While allowing you some access to the money, the bank is typically going to require some stable base of assets in the account. This is how it can earn a return on the money, which is what enables it to pay you interest.

Contrast with Money Market Funds

It's worth noting here that money market accounts are not the same as money market funds. The latter hold direct investments, with the investor's return determined by the performance of those investments. Money market accounts are a general obligation of the bank, and are covered (within the usual limits) by FDIC insurance.

"Just Right"--When a Money Market Account Is A Good Fit

Money market accounts have participated in the general surge in deposit accounts as investors have sought safety from volatile financial markets. In fact, the percentage increase was particularly high in transaction accounts such as checking and money market accounts, which suggests that even as people seek safety, they also want to retain a certain flexibility with their money.

Specifically, a money market account may be right for you if:

• You can deposit a significant amount, but want easy access to it for emergencies or opportunities.
• You use a checking account for your routine expenses, but sometimes have larger, less regular payments to make.
• You can use a money market account in connection with a checking account, using the checking for routine expenses and then replenishing it periodically from the money market account.

When you examine how you use your bank accounts, you may find that there is room for something "just right" in between a checking and savings account. If so, look into a money market account.

Sources:

Claude Solnik • Bank deposits surge as investors shun riskier investments • May 27, 2009 • http://www.libn.com • http://libn.com/blog/2009/05/27/bank-deposits-surge-as-investors-shun-riskier-investments/