What are Money Market Accounts
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Money market funds (MMA) are essentially a special form of open-ended mutual fund. They don't invest in stocks or ordinary bonds or any long term security -- only in short-term, fixed-income securities.
Money Market Mutual Fund Accounts:
Certificates of Deposit
Government agency obligations
Money Market Mutual Funds are Offered by Banks, Brokers, and Mutual Fund/Investment Companies
If you have an account at the online payment broker Pay Pal, it is essentially a money market savings account which pays interest.
Essentially, money funds are a good place to "park" your money for the short term. Or to keep just enough funds to cover your anticipated short-term expenses. In effect, they are much like regular checking accounts at your bank, except they do pay interest and you can't write checks below a certain minimum amount. The interest they pay is low compared to longer term bonds, but it's more than what your regular checking account pays you (these days -- zero!).
Let's say you have an account at a brokerage. You own some stock, which you sell. You want to reinvest the money in another stock, so you don't want the brokerage to mail you a check for the money. So the brokerage places the cash into its "in-house" money market fund, where it earns some interest before you use it to buy shares of another company.
Most every mutual fund family of any size runs a money market fund that accomplishes the same purpose. It also them to hang on to your cash until you decide to invest it in another one of their mutual funds. But they do pay you the interest your money earns.
And many financially sharp people have their paychecks, pensions, or Social Security checks go direct deposit into a money market fund account so the funds start earning interest immediately.
The most common type of money mutual fund are the general purpose funds.
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