Are you looking for somewhere you can put money aside for a rainy day? Would you like to be able to earn some extra money on your savings? It’s all very well and good having a checking account, but there aren’t too many that pay interest on the balance. A savings account is one option. It’s also possible to use CDs. However, both of these options have their limitations. Another desirable option that’s becoming increasingly popular is a money market account.
If you’ve heard about their benefits and what to know more, keep reading. If you’ve never heard of this type of account and are curious, this guide is also for you.
A Money Market Account – What Exactly Is It?
You probably already know that a checking account is a bank account for everyday expenses. You can easily and quickly withdraw cash as well as use it for paying bills and making purchases. With a checking account, you generally get a debit card and the option of writing checks.
A savings account is another common type of bank account that you can use for storing money you don’t need immediately. A savings account earns interest on the deposit.
A money market account is a combination of both these accounts. In other words, you get to enjoy the benefits of a savings account with the added flexibility of a checking account. The interest rate is usually higher, but you are limited in the number of transactions you can make every month. These limits are placed on money market accounts by federal law. It is possible to exceed the limits, but you have to pay a fee.
A money market account is useful if you want to save for:
- A vacation
- A tax payment
- A new car
- A college fund
- An emergency fund
Jumbo money market accounts are another type of account. They are designed for savers who want to earn even higher interest rates while enjoying a certain amount of liquidity. The minimum opening deposit for this type of account is $100,000.
An IRA money market account is another type you might encounter. They are designed to help people save for retirement.
The Benefits of a Money Market Account
There are several benefits you can expect to enjoy if you open a money market account. They include:
Higher Interest on Your Money
Generally, you can expect a higher interest rate compared to a checking or savings account. Figures given by the Federal Deposit Insurance Corporation (FDIC) indicate you can expect to earn on average 0.15% on deposits less than $100,000. Higher rates are available, for example, if you open a money market account with an online bank.
Funds are Insured
If you open an account with a bank that’s insured by the FDIC or another credit institution protected by the National Credit Union Administration (NCUA), your deposits are insured. Premier Members Credit Union is one example of a financial institution whose accounts are federally insured. The maximum amount covered is $250,000 per depositor. This means that if the bank or credit union goes under, you will get your money back, up to the maximum limit.
These organizations provide a slightly different service than FINRA. Member FINRA regulation deals mostly with brokers and anyone involved in the securities business of financial firms.
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You Can Write Checks
With a money market account, you can make payments using checks.
You Can Use a Debit Card
As well as being able to write checks, you can make payments or withdraw cash from an ATM using a debit card. Credit cards, on the other hand, are not issued with a money market account.
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The Downside of Opening a Money Market Account
If you want a reasonable interest rate and have easy access to your money, it’s worth considering a money account. There are, however, a few disadvantages worth mentioning.
Limited Number of Transactions
Being able to access your money using either a check or debit card is a great advantage. However, the number of transactions is limited to six. Transactions include debt purchases, check payments, transfers to other accounts, and different types of withdrawals. The limit applies per calendar month or account cycle, depending on the account provider. If you want to make more than six transactions, there’s a hefty charge. It could be as much as $15 per transaction.
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Minimum Balance Requirement
To become a money market account holder, you must deposit a minimum balance. The actual amount varies from bank to bank and could be as much as $10,000. This is a sizeable sum to gather. Add on the fact that you may need to keep a precise balance in the account at all times, and, for some savers, this makes a money market account far less attractive.
If you find yourself dipping below the minimum balance requirement, you’ll lose out by earning less interest as well as getting hit with a maintenance fee.
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5 Reasons Why You Should Consider Opening a Money Market Account
There are pros and cons to opening a money market account. There are also five valid reasons why you might want to open one. The advantages are:
- High-interest rate – shop around, and you’ll find a bank or credit union offering a high-yield money market account with a desirable rate
- Accessibility – quick and easy access to your funds
- Use a Debit card – ability to use a debit account with your account
- Writing Checks – you can write up to six checks every month
- Insured account – when you want to deposit several thousand dollars into an account that’s secure and safe
To find the best money market account it pays to shop around.
What to Look for in a Money Market Account
If you like the sound of a money market account, there are plenty of options you can choose. More and more banks and credit unions offer this type of account. While it’s always good to have lots of choices, it also makes choosing one more complicated. Knowing what features to look for is an excellent place to start.
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The first thing to look at is the interest rate. Find a bank or credit union offering an interest rate that’s higher than any other, and you’re off to a good start. But don’t stop there because you also need to check out additional details of the account.
Maintenance fees can chip away at any interest you earn. Check whether the rate is an introductory rate or if you can expect it to stay at the same level for at least the foreseeable future. There are, however, no guarantees that the interest rate will remain the same.
Be wary of an account that offers tiered interest rates that may fluctuate with a changing balance. Look at all the rate tiers rather than just the highest one to ensure the account is attractive.
The figure you want to take notice of is the Annual Percentage Yield (APY), which is how much interest you’ll earn on your savings. The higher the APY, the better it is for you.
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Minimum Balance Requirements
Some money market accounts have a minimum balance requirement. Generally, you can expect it to be higher than a checking or savings account. Fail to meet the balance requirements, and you could pay a hefty fee. The Annual Percentage Yield (APY) could also be affected if the higher rate is dependent on keeping a precise balance.
Certain restrictions are outlined in federal law, and these are the same whichever bank or credit union you choose. There may be other restrictions that vary depending on the account. Be sure to ask about these restrictions before opening your account, that way you know what you’re getting.
Not all money market accounts are created equal. Some offer excellent access to your funds, while others are more limited. Look for features such as mobile banking, online transfers, and ATM access.
Fees and Other Charges
With a money market savings account, you can expect to pay fees. Ideally, you want as few fees as possible. If you’re paying out lots in fees and service charges, it doesn’t matter how high the interest rate is. Look for an account that has no fees, or make sure that your circumstances allow you to avoid them. Charges to watch out for include minimum deposit requirements, minimum balance amounts, exceeding transaction limits, and a closing account fee.
Are There Any Risks?
Generally, money market savings accounts are a relatively safe and conservative investment. However, make sure you read the small print very carefully as some have slightly riskier investment options than others.
Now that you know what to look for, it’s time to run through some of the best money market account rates.
Our Top 10 Money Market Accounts
With so many money market savings accounts available, it can be challenging to know where to start. To help you find the best one for you, here are our top 10 favorites:
CIT Bank Money Market Account
With just a $100 minimum deposit requirement, this CIT Bank online money market account is very attractive. The APY is a little lower than other accounts on our list at just 1.85%, but other benefits make it a good option. Other features include:
- Quick and easy access to your funds
- No monthly service fees
- FDIC insured
- Limit of six transactions per statement cycle
- Ability to deposit checks remotely and make transfers using the CIT Bank mobile app
- Easy account opening process that you can complete online
One other benefit of banking with CIT Bank is the variety of other high yield accounts they offer. For example, the Term and Jumbo CDs offer a desirable interest rate that is on par with the money market account. There is also the new Savings Builder account with an APY of 2.30%.
Ally Bank has a reputation for offering some of the highest rates available for savings accounts. The money market account is not quite as impressive, but other features help to increase its attractiveness. Other features include:
- No monthly maintenance fees
- No minimum opening deposit required
- FDIC insured
- Checks can be deposited remotely using Ally eCheck deposit
- Online and mobile banking services available
- Debit card and standard checks at no charge, although this service is limited to a maximum of 6 withdrawal transactions per month
- Unlimited number of deposits
- Allpoint ATMs you can use for free (more than 43,000 available across the US)
- Reimbursement up to $10 per statement cycle for fees charged at non-participating ATMs
The rates currently offered at Ally Bank are 0.90% APY for balances up to $24,999 and 1.00% APY for balances above $25,000. If you want an even better rate on your savings, you should consider the online savings account which is currently offering 1.90% APY. This rate is 20 times the national average.
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BBVA (Formerly BBVA Compass)
With a BBVA Money Market Account, you enjoy an amazingly high yield of 2.00% APY, and all you need to deposit to open an account is $25. If this high-interest rate isn’t enough to get you interested, there are a few more advantages.
- Money market account can be linked to your BBVA checking account to provide overdraft protection
- Withdrawals from Allpoint network of ATMs are entirely free
- Accounts can be opened online or in-person
- 24/7 access to a mobile banking app
There is a $15 monthly fee for the account, but you can avoid it if your account balance is at least $10,000. If you set up recurring transfers from a BBVA checking account, you can also prevent the monthly fee. Another downside is that you need to maintain a minimum balance of $10,000 to qualify for the 2.00% APY. Balances lower than that only receive 0.05% APY.
Its US headquarters may be in Chicago, but BMO Harris has almost 600 branches located around the US. If you open a Platinum Money Market account with a $25,000 balance, you get 1.00% APY. That’s five times more than the national average. Deposit $250,000 or more, and you’ll get 1.25% APY. Other perks of this account include:
- No monthly maintenance fees
- No minimum balance requirements
- Order checks for making payments
- It takes less than 5 minutes to open an account
- The security of knowing you’re banking with a financial institution that has a 200-year history
There are a few downsides to be aware of. If the balance in your money market account is less than $5,000, you only earn 0.05% APY. If you decide to terminate your account within 90 days of opening it, you’ll have to pay a $50 account closing fee. Residents of Arizona, Florida, Indiana, Illinois, Kansas, Missouri, Minnesota, and Wisconsin are not eligible to open a BMO Harris Platinum account.
Investors Bank offers the Investors eAccess Money Market account. With almost a century of banking history behind it, you can feel more secure in your investment. The bank’s headquarters are in Short Hills, New Jersey and, along with New York, there are more than 150 branches. Customers in other states don’t have to feel left out because the eAccess Money Market account is available online. There are numerous benefits, including:
- No opening deposit requirements
- Interest on balances up to $2,000,000
- Six transactions, totaling $250,000, per statement cycle
- Option to link up to 5 external bank accounts
- Online and mobile banking
- 2.30% APY
- No hidden fees
- No minimum balance requirements
The downside of this account is that you aren’t able to write checks or use a debit or ATM card. Sending an outbound wire transfer is also not allowed. Six withdrawals are allowed every month, but you can make these only via an external transfer or an electronic transfer.
UFB Direct is an online division of Axos Bank. It’s able to offer some very generous rates for all of its products, thanks to the low operating costs associated with an online bank. Its UFB Premium Money Market account, in particular, offers one of the best rates available at 2.25% APY on all balances of $25,000 or more. Other benefits include:
- Complimentary Visa® debit card
- Digital tools that make for a seamless remote banking experience
- No monthly maintenance fees if you can maintain a $5,000 minimum average daily balance
- Free transfers between direct deposit accounts
- Deposit checks remotely using your smartphone
- SMS messaging can be used to access account features when an internet connection is not available
UFB Direct rates are based on a tier system. Account balances up to $24,999 only earn 0.5% APY. Balances of $25,000 and above earn 2.25% APY.
Capital One 360 Money Market Account
If your balance is $10,000 or more, you can earn a very competitive interest rate with the Capital One 360 Money Market Account. 2.00% APY is one of the best money market account rates in the US. There are additional benefits that make it even more attractive.
- No monthly fees to open or maintain your money market account
- FDIC insured
- Digital savings tools to help you stick to your savings plan
- A remote check deposit can be made using the secure mobile app
- If your account balance drops below the $10,000 threshold, you still earn 0.85% APY
There are a couple of disadvantages. The account doesn’t offer the option to write checks, and there’s no debit card. It is, however, possible to link other bank accounts.
Before changing its name, the TIAA bank was EverBank. It provides customers with a range of lending, investing, and banking options, one of which is its Yield Pledge Money Market account. It’s the yield pledge that makes this account so attractive. TIAA Bank pledges that its money market account rate will always be competitive and in the top 5% of money market rates. Aside from this, other benefits make this account stand out from the crowd. They include:
- No monthly fees
- Allows mobile check deposits
- IRA eligibility
- All ATM fees reimbursed as long as your balance is $5,000 or more
- An introductory rate of 2.15% APY
- The mobile app helps you stay better connected with your money
The one thing to remember about this account is that the rate of 2.15% APY is only an introductory offer. After the introductory period, the rate drops depending on your balance. Accounts with more than $100,000 earn the most significant rate at 2% APY. Balances under $10,000 earn 1.1% APY, which is still very competitive.
Discover Bank Money Market Account
For balances below $100,000, the Discover Bank Money Market account offers a very appealing 1.85% APY. For accounts with more than $100,000, the rate increases to 1.90% APY. Several other features might pique your interest. They include:
- No minimum balance fees
- You can make withdrawals at more than 60,000 ATMs across the US
- Replacement debit card available with expedited delivery
- Official bank checks available with expedited delivery
There is, however, a minimum opening deposit requirement of $2,500. The usual limit of six transactions applies.
First Internet Bank of Indiana Money Market Account
It’s possible to open a money market account with as little as $100, and this will earn you 1.81% APY. The same applies to balances up to $250,000 but go over that and the rate increases to 2.02% APY. You will be charged a monthly maintenance fee unless your average daily balance is $4,000 or more. It pays to meet this requirement; otherwise, any interest you earn is canceled out by the fee. An ATM card is available, although it’s for sole proprietors only.
How to Open a Money Market Account
When you’re ready to open a money market account, there are some steps you need to take.
Before you take the plunge and open a money market account, spend some time comparison shopping. Think about what you’d do if you were looking for a new car, refrigerator, TV or any other sizeable purchase. The first thing you’d do is look around for the best deal. Money market accounts vary considerably between financial institutions. Look for the best rates, terms, and yields available. There are various websites you can use for comparison.
Decide on the Features You Want
Money market accounts come with a variety of different features. It’s up to you to decide which are the most important. Do you want to be able to write checks or withdraw cash using an ATM? Would you prefer not to worry about keeping a minimum balance? Are the free withdrawals sufficient for your needs? Choose the best match or one with the lowest fees.
Compare Account Fees
Aim for an account that charges minimal fees, so you get to keep more of your money. You should avoid monthly maintenance fees if at all possible. It might also pay to look for an account with no minimum balance requirement to avoid paying a fee.
Compare Minimum Deposit and Balance Requirements
Do you already have an amount set aside for the deposit? Something you have to consider is the minimum deposit requirement, as most money market accounts have one. It could be as little as $500 or as much as $10,000. There may also be a minimum balance requirement to take into consideration.
Connect with Those That Meet Your Needs
Taking these steps means you should now have a list of suitable banks or credit unions that offer an account that meets your needs. Now all you have to do is get in touch with them and start the account opening process.
Submit Your Application
You can apply online or in person. Either way, the process is the same. When completing the application, you’ll need to supply certain information. This generally includes:
- Personal information such as your name as it appears on your ID, registered address, date of birth, Social Security or taxpayer-identification number, mother’s maiden name, employment status, and income.
- If the account is going to be a joint one, you’ll also need your spouse’s or partner’s personal information.
- The personal information of the beneficiary who will receive the money in the event of your death.
- The amount you plan to deposit when you open the account.
- Whether you want to use checks or a debit card with the account.
Complete Verification Process
You may be required to provide official documentation to confirm the information you’ve provided. To verify your address, you’ll need to submit copies of a utility bill or a lease with your name on it. You’ll also need to provide copies of your identification and any income-related documents.
Provide Funds for Your Account
If a minimum deposit is required to open an account, you will need to provide funds at the time of opening.
Now all you have to do is sit back and wait for your application to be accepted.
If you’re still not sure whether a money market account is for you, let’s look at some of your other options.
Money Market Account vs. Basics Savings Account vs. CD vs. NOW Account
When it comes to saving your money, there are several options available to you. A basic savings account is what most people choose first. It provides interest on your account balance. Your money is safe because it’s federally insured and you can access it relatively quickly.
For many people, this isn’t enough. A money market account is the next step up if you’re saving. It’s a cross between a savings account and a checking account. Like a savings account, you will earn interest on your balance. Like a checking account, you can make withdrawals using checks or a debit card. There is, however, a downside. It’s not as flexible as a checking account, with transactions limited to only six per month or per statement cycle. You may also have to deposit a minimum amount and keep a minimum balance if you want to avoid paying fees.
CD or Certificates of Deposit
Certificates of deposit are timed deposit accounts. In other words, you choose the length of time you want the account to stay open. It can range from a few months to several years. You open this account with a deposit, and you hold it in the account for the set period. You are not able to make withdrawals or additional deposits. The interest rates tend to be very favorable, but there are limitations you must consider, including how easily and how often you can access your money.
There is, however, a reason for this type of savings account. Locking away your money for a set period means you can’t spend it. You also earn interest on the balance. It is possible to take money out if you need to, but you will incur a sizeable penalty. CDs can have a higher interest rate than a money market account, but this tends to be for long-term accounts of two years or more.
The initials NOW stand for Negotiable Order of Withdrawal. The Federal Reserve considers this a transaction account. Open a NOW account, and you’ll be able to access it an unlimited number of times. This is different from a money market account that generally limits the number of transactions to six.
NOW accounts are not so popular nowadays because it’s possible to have a checking account that pays interest.
Choosing the Right Account for Your Needs
A basic savings account is the best choice if you’re the kind of person who only has a small amount of savings. You get a small amount of interest, but there’s little to no service charges or fees. Savings accounts are suitable for young people, to help them learn about saving money. If you’ve regularly got a high balance in your checking account, a savings account is somewhere you can transfer this money so that it earns interest.
If you’ve got a little bit more money to save, the next best option is a money market account. The interest rates are usually higher, but you’re still able to access your money relatively quickly. All you need to worry about is being able to meet the minimum balance requirements and not exceeding the transaction limit.
If you’re not too worried about being able to access your money at short notice, certificates of deposit are worth considering. You will earn more interest, but this benefit must be weighed against less convenient access to your money. If you need to withdraw your money before the end of the period, you might lose a large percentage or all of your interest.
Is a Money Market Account a Safe Investment?
If you’re looking for a safe place to put your money, a money market account is one of the most reliable options. Just like savings accounts, money market accounts are insured by the Federal Deposit Insurance Corporation. You do, however, have to make sure you open an account with an FDIC member bank. If you select a money market account with a credit union, look for one that’s protected by the National Credit Union Administration (NCUA).
Both the FDIC and the NCUA protect you against losses if your bank or savings association fails.
Pitfalls to Avoid When You Open a Money Market Account
Investing money is a risky endeavor; however, you choose to do it. While a money market account may not be as risky as stocks, there are still some important factors that you should understand. Here are some of the most common misconceptions people have about money market accounts.
A Money Market Account is Not the Same as a Money Market Fund
Many people think that a money market fund and a money market account are the same. You must understand the differences because they’re critical. You already know what a money market account is because we’ve explained in great detail.
Money market funds are low-risk investments and provide low-returns, but that’s where the similarities end. When you invest in a money market fund, you invest your money in liquid assets such as cash and cash equivalent securities. High credit rating debt-based securities are also invested in for the short term. A money market fund is less secure because there is no FDIC guarantee. Money market funds pay dividends, as opposed to interest. The dividend rate is generally a reflection of short-term interest rates.
The returns you can expect on your money market fund depend on market interest rates. Funds are also divided into different classifications, depending on the types of investments. They tend to be either prime money funds, such as commercial paper of non-Treasury assets or floating-rate debt. Treasury funds are another type, and these include investments in US Treasury-issued debt like bills, notes, and bonds.
Your Money Market Account Safeguards You Against Inflation
This is another common misconception. You only have to look at how inflation rates have changed to see that a money market account doesn’t always outpace inflation. The average money market account pays under 2% interest. Inflation, on the other hand, while currently at an all-time low, has averaged 2.24% over the last twenty years.
If inflation drops any lower, banks and credit unions will likely decrease their interest rates, thereby negating any advantage.
How Can You Achieve the Right Balance?
The major downside to a money market account is that they require a substantial amount of capital to earn the best interest rates. Having large amounts of money in this type of account is not necessarily the best thing to do. It’s an inefficient way to save money in the long term.
To make the most of a money market account, you should aim to keep six to twelve months of living expenses to cover any unforeseen emergencies or life events. Anything more than that and you’re not making any money. Your savings might be falling in value.
Hoarding Money is a Smart Thing to Do
The crashes of previous years have led people to believe that squirreling away large sums of money is the smart thing to do. If you want to benefit from high-yield returns, however, you should consider diverse investments. Five decades ago, it was OK to keep cash under the mattress, but today you have to be smarter and be prepared to take some risks.
Putting All Your Eggs in One Basket
If you want to be a wise investor, you need to learn to diversify. Having all your eggs in one basket is not a smart thing to do. If you want to put all your savings into money market accounts, make sure you open several of them. The FDIC only insures up to $250,000 per account. Therefore, it makes sense to open accounts with multiple banks so that your money is protected as much as possible.
An excellent strategy to adopt is the three-bucket principle. Set money aside for the short, medium, and long term.
- Short term investment – one to three years – money markets, savings accounts, certificates of deposit, Treasury bills and government bonds
- Medium-term investment – four to 10 years – a mutual fund, bond, building savings, P2P loans
- Long term investment – 10 years and more – low-risk investments such as life insurance policies, bonds, Treasury bonds or annuities
If you want to keep ahead of inflation, diversifying your portfolio is an excellent way to go.
Whether you should open a money market account is something only you can decide. After carefully comparing all the information provided in this article, you’re in a much better position to make an informed decision. Weigh all the factors individually and as a whole and determine which are the most important to you.
There are no rules that say what you must do, and every person is different. Your needs are unique, your values and requirements are personal to you, and only you can decide what is best. There are benefits and disadvantages to opening a money market account, and you have to determine what works for you.
If you want somewhere to park some funds until you need them, a money market account could be right for you. A money market account is usually a short-term investment solution that offers flexibility, and you never know what’s around the corner. If you’re looking for a high return on your cash, you might be better off looking elsewhere. High-yield savings accounts, for example, often offer a better rate although there may be additional requirements.
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Always remember that money market rates are not fixed but variable; they change over time. The rates given in our money market account reviews were current at the time of writing. To find out the most up-to-date information, click on the links, and visit the relevant website.
When you’ve made your decision, we’d love to hear about your experiences. If you were able to find a bank or credit union that offers a better rate and features than those we’ve mentioned, let us know. We are always updating our lists and looking for the best deals for our readers.
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