How to Choose a Money Market Account
If you’re looking to reach your savings objectives, money market accounts can be a suitable choice. Selecting an appropriate money market account can help you earn a competitive annual percentage yield (APY). Several top money market accounts provide the opportunity to earn a high yield and include the added benefit of check-writing privileges. To determine if a money market account is the right fit for your needs,
consider the steps outlined below.
- First, determine your savings goal and the timeline for using the funds.
- Next, research various banks and credit unions, and compare their money market accounts to find a suitable match. Look for accounts that offer a competitive APY, check-writing capabilities, and ATM access.
- Keep in mind any potential minimum balance requirements or monthly service fees that may apply.
- Make sure the account is FDIC-insured and confirm that your funds fall within the FDIC limits and guidelines.
- Finally, open the chosen money market account and make an initial deposit. If the bank offers a mobile app, consider downloading it for easy access to your account.
What Is A Money Market Account And How Does It Work?
A money market account is a type of savings account offered by banks and credit unions. Similar to a savings account, you can deposit and withdraw funds from a money market account while earning interest on your deposits. However, there may be limitations on withdrawals and transfers imposed by the bank. What sets money market accounts apart from regular savings accounts is that they often offer check-writing privileges and even a debit card, allowing you to easily access your funds. This added flexibility and liquidity make them a popular choice for savers. Some money market accounts also offer higher interest rates than traditional savings accounts, but they may require a higher minimum deposit and balance to open and maintain the account.
Important Money Market Account Terminology
- Check-writing privileges Money market accounts often provide the option to write checks against the account, which sets them apart from traditional savings accounts that typically do not offer this feature.
- Interest: Interest earned on funds deposited with a bank.
- Compound interest: This refers to earning interest not only on the initial deposit but also on the interest earned over time.
- Interest rate: This is the percentage of your account balance that a bank pays you annually for holding your funds on deposit. It does not factor in the effect of compounding.
- Annual percentage yield (APY): This is a more accurate measure of the total return on your account, as it takes into account the effect of compounding over a year. It is the best way to compare yields, rather than just comparing interest rates. A higher APY means more income earned on your deposited funds.
- Minimum balance requirement: This is the minimum amount that must be kept in a savings account to avoid a monthly maintenance fee.
Money Market Accounts And Compounding Interest
Money market accounts usually pay interest every month, typically around the same date each month. With compounding, the interest you earn also earns interest, which can help your savings grow even faster. The APY advertised by the bank already takes into account the effect of compounding over a year, so it’s a better indicator of your actual return than the interest rate alone. To compare different money market accounts accurately, make sure you’re comparing their APYs, not just their interest rates.
What Is A High-Yield Money Market Account?
When we say a money market account is “high-yield,” it means the account earns a relatively high rate of interest compared to other similar accounts. Usually, you can find high-yield money market accounts at online banks or credit unions that specialize in offering competitive rates to attract customers. Some high-yield accounts don’t have any minimum deposit requirements or monthly fees, but others might require an initial deposit and have minimum balance requirements to avoid fees.
Considerations for Opening a Money Market Account
How Do I Open A Money Market Account?
Opening a money market account is a simple process of selecting the bank and account that meets your needs. Some money market accounts don’t require a minimum opening balance, so you won’t have to worry about maintaining a certain amount in the account or incurring a maintenance fee. It’s important to compare the top APY accounts with the minimum balance that you’re comfortable with, to ensure that you’re making the best decision for your saving goals.
Before opening a money market account online, there are a few things to consider and prepare for:
- Make sure you have valid government-issued photo identification ready.
- If required, be ready to lift a security freeze on your credit file to open the account.
- Keep your routing number and account number handy for the account you plan to use to fund this new account.
- Have your social security number readily available.
- Almost all of this information may also be needed if you open a new account in person. You may need cash or a check (or checks) to fund a new account opened in a branch.
What Is A Good Money Market Account?
An ideal money market account should have a competitive APY and minimum balance requirements that suit your needs, while also helping you avoid fees. If the account has a higher balance requirement, the top-performing money market accounts offer a higher APY as a reward for maintaining this balance. The specific balance requirement is not as important as ensuring that it aligns with your planned account balance, allowing you to earn the maximum APY and avoid fees.
Additionally, a great money market account offers convenient features such as an ATM card for easy ATM access, as well as check-writing privileges that include free checks for occasional use.
Is a Money Market Account Safe?
Money market accounts can be considered secure if they are held at an FDIC-insured bank or a federally insured credit union, as long as they fall within the prescribed limits and guidelines. The FDIC provides deposit insurance that covers up to $250,000 per depositor, per insured bank, for each account ownership category. Similarly, accounts at NCUA credit unions are insured up to the same amount as FDIC banks. If a bank or credit union fails, your money within the set limits and guidelines is safeguarded and supported by the full faith and credit of the U.S. government.
To confirm whether a bank you are interested in is FDIC-insured, you can use the FDIC’s Bank Find tool, which can also help you determine if multiple banks use the same FDIC certificate. It is always recommended to double-check with the FDIC or NCUA and your financial institution to confirm your insurance coverage.
Who Should Get a Money Market Account?
A money market account could be advantageous for those seeking a secure place to store a substantial amount of money while earning interest. However, such accounts are especially useful in specific scenarios, including:
- Establishing a reserve fund for unforeseen expenses.
- Saving towards a specific objective, like buying a house or going on a trip.
- Building up savings in a high-interest account that enables occasional check writing.
- Earning a better interest rate than what is currently available in your savings or checking account.
When Should You Open a Money Market Account?
If you’re seeking an account that provides safety, liquidity, and a higher interest rate than standard savings or checking accounts, consider a money market account. Additional reasons to choose this type of account include:
- The option to write checks or use a debit card, with a maximum of six transactions per month.
- The ability to access funds quickly in case of an emergency.
- A secure location to store your emergency savings.
- A desire for a comparable interest rate to a CD without locking your money up for an extended period, while still enjoying the protection of an FDIC- or NCUA-insured account.
Money Market Accounts And Compounding Interest
Money market accounts usually pay interest every month, typically on or around the same day each month. Compounding interest is when your interest earns its interest. The published APY of an account includes the effect of compounding over a year. To compare interest rates across various money market accounts, it’s best to use an apples-to-apples approach by comparing APYs rather than interest rates.
Money Market Account Pros And Cons
Money market accounts offer certain features that are not typically available in standard savings accounts. Below are some of the primary benefits and drawbacks of using a money market account.
Money market account pros:
- Earn a competitive Annual Percentage Yield (APY).
- Access to check-writing capabilities.
- Some money market accounts may offer ATM withdrawal options.
Money market account cons:
- Certificates of Deposit (CDs) could potentially offer higher APYs.
- Withdrawals from some banks may be limited to six per statement cycle.
- Some savings accounts may offer higher APYs.
Money Market Accounts Vs. Alternative Account Types
To ensure that a money market account is the best fit for your finances, it’s important to compare it with other types of accounts. Evaluating money market accounts alongside savings accounts, checking accounts, CDs, NOW accounts, and money market funds can be helpful, as each of these options serves unique financial needs and goals.
Money Market Accounts Vs. Saving Accounts And Checking Accounts
Money market accounts can be a suitable option instead of standard savings accounts if you want to write checks or use a debit card, as well as earn a potentially higher return. However, if your top priority is maximizing your earnings, it’s worth comparing rates on high-yield savings accounts available at online banks. These accounts may surpass both money market accounts and standard savings accounts in terms of interest rates. Moreover, money market accounts offer a combination of interest earnings and transactional features like check-writing and debit card access. In contrast, most checking accounts do not earn interest but generally have no limits on monthly transactions.
Money Market Accounts vs. CDs
A money market account is designed for accessible funds, while a CD is meant for longer-term savings that won’t be accessed before the CD’s term ends to avoid early withdrawal penalties. Since money market account yields are typically variable, a CD can provide a fixed APY to safeguard against potential decreases in money market rates. Occasionally, CDs offer higher APYs than liquid money market accounts. Determining which account type is best for your financial objectives will depend on various factors. When comparing money market accounts with CDs, there are pros and cons to consider.
Money Market Accounts vs. Now accounts
As per the Federal Reserve, a negotiable order of withdrawal (NOW) account is considered a transaction account, while a money market account is categorized as a non-transaction account. NOW accounts permit an unrestricted number of third-party payments, whereas money market accounts are subject to a limit of six “convenient” transfers or withdrawals per month under Regulation D. Certain banks may impose additional restrictions on transactions for money market accounts.
Money Market Accounts Vs. Money Market Funds
Money market funds and money market accounts are distinct financial products. Money market accounts can be found at FDIC-insured banks and NCUA credit unions, while money market funds are usually available through brokerages. Money market mutual funds are not covered by FDIC or NCUSIF insurance at a credit union, but they are still viewed as low-risk investments that can be easily converted to cash. Certain money market funds may be exempt from income taxes.
Money market accounts and money market funds may both offer check-writing capabilities.
Regular Money Market Accounts Vs. Jumbo Money Market Accounts
A jumbo money market account usually has a higher minimum balance requirement than a regular money market account. Typically, a jumbo deposit product demands a minimum balance of $100,000, and this is also true for jumbo CDs. Although jumbo money market accounts are less common, some financial institutions offer them.
- Navy Federal Credit Union provides an APY of up to 2.25 percent on balances of $1 million and above for their jumbo money market account.
- Alaska USA Federal Credit Union has a jumbo money market account that offers a top yield of 0.5 percent APY, which requires a minimum balance of $250,000.
Methodology For Fintechaffair’s Best Money Market Accounts
The editorial team at Fintechaffair regularly updates the rates featured on this page every two weeks to ensure accuracy. We prioritize the highest APYs and use the minimum balance to open a CD as a tiebreaker. Our team has conducted extensive reviews of nearly all the banks and credit unions we track and research rates every week for over 70 popular institutions. We have selected these institutions based on their competitive APYs, size (as measured by deposits or assets), online visibility, and other possible factors. These banks and credit unions typically offer accounts that are available nationwide and are all insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA) credit unions, insured by the National Credit Union Share Insurance Fund (NCUSIF). Choosing an FDIC-insured bank or NCUA-backed credit union guarantees that your money is secure as long as it is within the insurance limits and guidelines.