Banks offer money market accounts that pay more than savings accounts, and brokerages offer money market funds to allow investors to earn interest on cash between bigger investments. The good news is that you usually can close bank money market accounts and withdraw your money from brokerage funds without any penalty. In fact, because some money market accounts have minimum-balance requirements and penalties, it sometimes can be better to close them than leave a limited balance in them.
Money Market Accounts
A bank money market account is a specialized account that has some features of a savings account and some of a checking account. Money market accounts usually put money behind the scenes into higher-return investments than are allowed for with ordinary savings accounts, allowing for higher interest rates. Deposits still are insured by the Federal Deposit Insurance Corp.
Like checking accounts, money marking accounts often allow some check writing and even ATM and debit card use, but you usually are limited to no more than six total transactions per month under federal guidelines. If you make too many transactions, the bank can be required to close your account and move your funds to a checking account. Many money market accounts also have minimum-balance requirements, and some might charge a monthly fee if you don't meet that requirement. Some accounts don't have such requirements, so if you want to open such an account with a small amount of money or know your balance will fluctuate, it might be worth shopping for an account that meets your needs.
Closing Your Account
Unlike certificates of deposit, money market accounts don't have any set length of time in which you must keep your funds, or any penalties for closing your account. In fact, if your balance drops below the minimum required to avoid fees, you might be financially better off closing the account than paying the monthly fee. If you close your account, it's a good idea to double check with the bank that it is properly closed, rather than keep it open with a small balance so that you don't run afoul of any minimum-balance rule.
If you close any interest-paying account in the middle of the month, you might forfeit that month's interest, and banks can decline to close your account if it is overdrawn.
Money Market Funds
You also can put money in a money market fund through a brokerage. These funds typically invest in short-term corporate and government debt and pay some, but not a lot, of interest. They're considered relatively low risk, though they aren't FDIC-insured like money market accounts or other bank products, so there's no guarantee you won't lose money investing in them. There also is no guarantee that interest paid will keep pace with inflation.
You generally can put money into a money market fund through your brokerage, and there usually are no fees for moving money in and out of such funds or closing your position entirely. They often are used to house cash in between other investments since they're highly liquid and considered safe.
