Money market accounts are a type of high interest savings account that offers similar features to a checking account. Typically, these accounts offer the advantage of earning a higher interest rate on the money you’re saving, while still having convenient access to your cash when you need it. Of course, as wonderful as all that sounds, there are disadvantages to money market accounts to consider as well.
Below we will cover the key features and benefits of money market accounts, the differences between money market accounts and other types of accounts, as well as discuss when a money market account is most beneficial.
What is a Money Market Account?
Money market savings accounts can also be referred to as money market deposit accounts. They are offered at both credit unions and banks as a financial product that holds your deposits. The key features and benefits of a money market account are:
- Make unlimited deposits into the account
- Make a limited number of withdrawals, usually about 6 per month
- Funds are accessible with your debit card or by writing a check
- Requires a medium to high minimum balance to earn interest
- Pays a medium to high interest rate monthly on balances above the minimum requirement
- Typically imposes a fee if your balance falls below the minimum requirement
- Funds are federally insured by NCUA at a credit union or FDIC at a bank
Next, we’ll explore the basic differences and similarities between a money market account and checking and saving accounts. Below is a chart to compare these three types of accounts:
How is a money market different from a saving account?
Regular savings accounts are similar to money market accounts in that the number of withdrawals you can make is limited, usually to 6 per month, and the number of deposits you can make are unlimited. This is because both money market and savings accounts are considered deposit accounts, not transactional accounts, like a checking account. Due to this categorization both account type are regulated by federally Regulation D.
However, the main difference between the two accounts is that with a money market account the interest rate you earn is much higher than a basic savings account. You also are required to maintain a higher minimum balance to earn the interest with a money market, than you are with most savings accounts.
Also unlike a savings account, with a money market account you’re able to access your funds easily with your debit card. However due to the withdrawal limitations debit card usage should be used sparingly.
How is a money market different from a checking account?
Typically the main benefit of a checking account is the ability to access your funds quickly and easily using your debit card, this is also true for money market accounts. However, money market accounts restrict the number of withdrawals, as we mentioned above; whereas checking accounts typically do not.
Checking accounts are intended for day to day transactional use, where as a money market accounts are more oriented for occasional usage. Because of this most checking accounts have very low minimum balance requirements, if any. Whereas, money market accounts will require a high minimum balance to be maintained in the account to avoid fees or account closure.
Basic checking accounts also aren’t known for offering high interest rates, whereas money market accounts offer much more appealing interest rates. This is again due to the nature of the accounts themselves. Checking accounts are not meant to encourage deposits; they are simply a secure place to keep your funds meant for spending, whereas money market accounts are meant to help you save your money for the long term.
What Can a Money Market Account be Used for?
If you’re looking to earn a higher interest rate on a larger sum of money, but still need occasional debit card access to it, a money market account can be a great option to consider. People use money market accounts for all sorts of reasons, ranging from a place to keep their emergency fund to a place to save for a down payment on a home. There are typically no limitations on what the funds you place in the account can be used for, just make sure you’re balance doesn’t fall below the minimum requirement or fees could be imposed.
Money Market Account Recap:
Money market accounts blend together the best features of checking accounts and savings accounts, while offering an attractive interest rate. However, as with most things in life there are disadvantages with money market accounts. They require a higher minimum balance than a normal savings account and impose a fee when your balance falls too low. That being said, if you have a larger sum of money just sitting in a typical savings or checking account that you don’t need to have daily access to, you should seriously consider transferring those funds to a money market account. That way you can earn a higher interest rate on your hard earned money without limiting your ability to easily access it in a pinch.
Of course, if you still have questions about money market accounts, don’t hesitate to contact our knowledgeable team. We will provide you all the answers you need to start making good money moves. No judgment. Just guidance.
