Money market accounts have some significant advantages over a traditional savings account, including a higher interest rate that makes your money work harder for you and a tiered interest rate that increases as you save more money in the account. Perhaps one of the biggest issues people have with money market accounts is that they have a higher minimum balance requirement.
What happens if the balance in your money market account dips below the minimum balance? For that matter, why would a money market account require a minimum balance in the first place? What is the typical minimum balance for a money market account?
Money market accounts have a higher minimum balance requirement because financial institutions need stable deposits in order to operate efficiently. Just like other types of savings accounts, banks and credit unions use the money in your account to finance loans for other members. In return, they offer you a higher interest rate to incentivize you to maintain the minimum balance.
However, it's important to note that you have the flexibility to withdraw money from your money market account whenever you need it. Additionally, you can also add more money to your account, giving you the opportunity to increase your savings. The more you save in your money market account, the better interest rate you'll qualify for, thanks to the tiered interest rate structure offered by most accounts.
If your money market account balance falls below the minimum balance, though, you’ll have to pay a low balance fee. This fee can serve as a reminder that your account has fallen below the minimum balance requirements.
The main reason financial institutions charge this fee is to discourage you from withdrawing that money unless you absolutely need to. After all, if the money in your money market account is consistently above the minimum balance, the financial institution can count on that money to loan out to other people.
While this is understandable, ask yourself - how often do you make withdrawals from your savings account? If you’re like most people, the answer is not very often. The odds are in your favor that you’ll be making more in interest than you’ll have to pay in low balance fees.
You should also know that you can avoid paying the low balance fee on your money market by closing it out and transferring your money to a traditional savings account before you withdraw any money. You won’t get the higher interest rate, but you also won’t have to pay the low balance fee. If you save up enough to meet the typical minimum balance requirement in the future, you can always open a new money market account.
If you want to open up a money market savings account, become a member of First Alliance Credit Union today. A member advisor will help you set up the account and you can manage it from any where, any time with our online banking and mobile app.