If you’ve seen the term “money market account” before but aren’t exactly sure what it is, don’t sweat it. With so many different banking options out there, it’s easy to skim past what’s unfamiliar and focus solely on what you know.
Not to be confused with money market funds, money market accounts can be a great place to store large amounts of cash — like an emergency fund, tax payment, or vacation fund — that will earn you interest without sacrificing accessibility.
As you work towards your financial targets, knowing which vehicles are best suited to help you reach your goals can be the difference between meager earnings and maximizing your money’s potential. A money market account might just be what you need.
What is a money market account?
With a money market account — or MMA — you’re essentially getting a mix of the features you’d find with a checking and savings account. Most often, these features include high interest rates, check-writing abilities, and debit card access.
Amounts vary from bank to bank, but MMAs typically require much higher minimum deposits and minimum balances when compared to traditional savings accounts. However, in return, you’re rewarded with higher interest rates and more flexibility in how you access your funds — specifically, check-writing.
While the biggest difference between a typical savings account and a money market account is the ability to write checks, Federal Reserve Regulation D limits each account to six transactions each month, just like savings accounts. Restricted withdrawals include transfers, checks, and debit card transactions. You can, however, make unlimited in-person and ATM withdrawals.
You shouldn’t have any trouble finding a money market account at most banks or credit unions, but you’re more likely to find higher interest rates with online banks versus traditional brick-and-mortar establishments. Money market accounts are also typically insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions, making them low-risk places to house your cash for short-term expenses.
Pros and cons of money market accounts
Money market accounts may be great for some people, but not for others. Check out these pros and cons to see if they make sense for you.
|Typically higher interest rate than a traditional savings account||May be a minimum deposit, which is usually significantly higher than a savings account|
|Flexible access to your funds through check-writing and debit card access||May have to maintain a minimum balance to earn the higher interest rates|
|FDIC- or NCUA-insured up to $250,000 per depositor||Limited to six transactions each month|
- Earn higher interest rates: The interest rates you’ll earn on a money market account are likely going to be higher than those on a traditional savings account — but usually aren’t as competitive as high-yield savings accounts.
- More flexibility in how you access your funds: Money market accounts may be subject to the six-transaction limit, but unlike savings accounts, you often have check-writing ability in addition to debit card access. ATM and in-person withdrawals aren’t subject to the transaction limit, either.
- Accounts are insured: Whether it’s with a bank or credit union, money market accounts are insured by either the FDIC and NCUA for up to $250,000 per account. This makes an MMA a low-risk place to put your money.
- Higher minimum deposits: Some banks require a minimum deposit; some don’t. If one is required, it may be significantly higher than what’s generally required for a savings account.
- Maintaining a minimum balance for higher interest rates: While most banks don’t require depositors to maintain a minimum balance, dropping below a certain amount may decrease the interest rate at which your money will earn. Ally, for instance, doesn’t slap you with a fee if your balance dips below a certain amount, but interest rates are 1.00% for balances of $25,000 or more and 0.90% for balances below $5,000.
- Limited to six transactions: Even though you’ll have more flexibility in how you access your funds with check-writing capabilities, money market accounts are limited to six transactions each month. This doesn’t apply to in-person withdrawals (like from a bank branch) and ATM withdrawals — these are unlimited.
Money market accounts vs. other savings options
|Type of account||What will you earn?||Why you’d want one|
|Money market account||Competitive rates, typically higher than a traditional savings account||
|Traditional savings account||Often the lowest rate of all||
|Online high-yield savings account||Some of the best rates you can find||
|Certificates of deposit (CDs)||Potentially the highest rates||
How to choose a money market account
If you decide a money market account is right for you, there are a few things you should look for as you conduct your search:
- A competitive interest rate
- No monthly maintenance fees
- A reasonable minimum balance
If you decide to go the online-bank route — where you’ll often find the best interest rates — you’ll also want to consider things like the bank’s security measures, website design, and mobile accessibility. Since you may be accessing your funds frequently, being able to navigate unimpeded by a poor website and mobile design is something you’ll probably want to look for.
If a money market account aligns with your financial goals, it may worthwhile to open an account.
With their higher interest rates and flexibility in how you can access your funds, money market accounts can be a great low-risk savings vehicle if you have a large chunk of cash you need to stash for short-term expenses.
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