A money market account is a type of savings account that pays a high interest rate and also lets you use some checking account features. You can open one if you have enough cash available, and it can help you save money while still having some access to your funds. It can earn more interest than a regular savings account.— Worldculturepost
Key Points
- Money market accounts are a kind of bank account that has some advantages of both checking and savings accounts.
- They usually earn a higher interest rate than normal checking and savings accounts, and they also let you use your money more than a certificate of deposit.
- These accounts are good for emergency funds or other costs that you don't have to pay often.
- Money in an FDIC- or NCUSIF-insured bank or credit union is safe up to the federal limits.
- MMAs are different from money market mutual funds, which are a way to invest money and are not insured by the government.
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| Worldculturepost - What Does a Money Market Account Do |
What a Money Market Account Is and How It Works
Many banks and credit unions have money market account options, both online and in person. Nowadays, many banks don't require a minimum balance to open one. If your bank gives you checks for your MMA, you will get them with your other account documents, which will tell you things like how many transactions you can make each month.
Your account documents will also tell you your annual percentage yield (APY), which is how much interest your MMA will make over a year. For example, if you put $10,000 in an MMA with an APY of 0.29% on January 1 and don't add or take out any money, by the end of the year, you will have $10,029.
If you have your money market account at an FDIC-insured bank or an NCUA-insured credit union, your money market account and any other accounts you have at the same place will be insured for up to $250,000 for one account or $500,000 for a joint account ($250,000 for each person on the joint account).
Pros and Cons of Money Market Accounts
Pros of Money Market Accounts
MMAs have some key benefits that make them appealing savings options for people who want to save their money.
Insured up to FDIC or NCUA limits: Like other checking and savings accounts at federally insured banks or credit unions, your money is secure and covered up to the federal limit.
Earns higher interest than some traditional savings accounts: You'll usually get better interest rates on an MMA than you'll get from a traditional savings account. Bigger account balances also help you earn more interest, and the return is usually somewhere between those of a savings account and a certificate of deposit (CD).
Money is available: Most accounts let you write checks or withdraw cash, and some give you a debit card you can use to buy things. This easy access, along with a competitive interest rate, is what has traditionally made MMAs unique. In recent years, rewards checking, interest checking accounts, and online banks have become more popular and offer the same benefits. Still, sometimes you'll get a better deal from a money market account.
Cons of Money Market Accounts
MMAs have some nice features, but you should know about a few drawbacks to them before opening an account.
Some banks may limit the number of transactions per month: You have access to cash in an MMA, but your bank may limit your transactions to less than six times per month this was a federal law until April 2020. However, some banks still follow it depending on internal policies.4 You can usually withdraw cash as often as you like, but these accounts aren't as flexible as your checking account for daily use.
Introductory interest rates may be higher than actual APY: If the rate seems too good to be true, double-check to make sure it's a permanent interest rate, not a promotional rate that will go away in a month.
May not be insured at some places: Make sure you use an MMA from a bank or credit union that will insure your funds. Ask your bank or credit union to confirm that your funds are insured and keep your deposits below the maximum insured limits.
Don't mix up these accounts with money market mutual funds, which are a way to invest money and are not the same financial tool. Money market mutual funds are not insured by the government.
Do You Need a Money Market Account?
MMAs are a great place to put the money you may need in the near future. They let you earn a small return while keeping the funds safe and accessible. They're especially useful for large, occasional expenses such as:
- Emergency funds
- Planning for quarterly tax payments
- Tuition
A money market account isn't the best place to keep funds for regular expenses because of the limits on how many check-based payments you can make. However, to earn a bit more interest, you could keep funds in an MMA for some of your biggest monthly expenses, such as your mortgage.
Alternatives to Money Market Accounts
If you don't need quick access to your cash, you can look at higher-paying CDs. You can even use a series of CDs called a "CD ladder" to earn decent returns while keeping some of your money liquid and minimizing early-withdrawal penalties. If you're investing for the long term, talk with a financial planner about what mix of investments can best help you reach your goals.