Money Market Accounts Key Terms

Learn how to beat inflation with money market accounts

By Mark Jenkins

Money market accounts offer individuals and businesses a way to save money, beat inflation and earn higher-than-average interest on their investments. Unlike traditional savings accounts, money market accounts often have required minimum balances and limited monthly withdrawals. Despite these drawbacks, these accounts usually produce better returns on large sums of money than regular savings accounts. Before signing up with a bank, it's good to know a few basic money market accounts key terms.

Annual percentage yield

Similar to the annual percentage rate (APR), annual percentage yield (APY) tells investors what kind of interest they will earn on a money market account, considering the effects of compound interest. APY also allows people the ability to compare interest rates for accounts with different period lengths.
Try: Investopedia is the place to go for readable explanations of investment terms like APY.

Service fee

If a money market account's balance falls below the minimum required balance, the bank will charge the user a service fee. Many large banks do not have service fees, but smaller ones might.
Try: Fulton Financial Corporation explains the service fee, as well as other fees, associated with its money market accounts.

Minimum deposit

The minimum deposit is the amount required to open a money market account. Some accounts have minimum deposits as low as $1, while others may require deposits of $5,000 or more.
Try: Bankaholic maintains a list of the nation's top 50 money markets and specifies the minimum deposit and APY for each.

Interest rate

Interest rates on money market accounts usually vary according to the account balance. Accounts with extremely large balances, such as those over $100,000, earn much better interest than those with low balances. This also means the accounts have much higher APYs.
Try: MoneyRates.com provides information on money market accounts and provides the interest rates for the accounts.

Compounding method

Banks use different methods to compound interest on their money market accounts. Some use daily compounding, while others may use monthly or annual compounding. Because the interest rates are generally very low, the compounding method does not have a large effect on APY.
Try: Like Bankaholic, Bankrate.com also ranks the top 50 money market accounts in the country. As a plus, it also publishes the compounding methods for each bank.

FDIC-insured

In general, the Federal Deposit Insurance Corporation (FDIC) insures money market accounts. If the accounts lose all their value, investors can still get their initial investment back.
Try: The website for the FDIC outlines which types of accounts and investments it insures.