New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Auto CDs &
Retirement Checking &
Taxes Personal

Money market accounts reward thrift

Saving money for a rainy day requires discipline -- and sometimes a bit of hand-holding, too.

Enter the money market account. It combines the liquidity of ready cash with the knuckle-rapping discipline imposed by a federal limit on certain transactions.

A money market account is a savings account offered by banks and credit unions, insured by the Federal Deposit Insurance Corp., and requiring a high minimum balance -- averaging between $100 and $2,500.

Discipline through limits
The discipline derives from a cap. By law, you are allowed to make no more than six withdrawals and transfers per month if the transactions are overdraft protection transfers, automatic bill deductions, wire transfers, telephone transfers and PC banking transfers. However, money market account holders are usually allowed to make unlimited free deposits and withdrawals from ATMs in their network.

- advertisement -

Money market account holders are allowed to write up to three checks per month. If the owner exceeds the allotment, a bank often will charge between $5 and $15 per check. Repeat offenders may have their accounts closed.

Many financial planners maintain that an individual should have three months to six months of cash or cash equivalents -- checking accounts, savings accounts and CDs -- on hand for emergencies. For medium-term expenses, such as saving for a down payment on a car or furniture, a money market account can be the ideal choice, says Ilyce R. Glink, the author of "100 Questions You Should Ask About Your Personal Finances."

"You should move enough money into your non-interest-bearing checking account to pay your bills, while a larger reserve should be kept in money market accounts to gain a higher rate of return," Glink says.

Some families use the interest that their money market accounts earn each month to pay off credit card bills or handle emergencies. Money market accounts provide a higher rate of return than a regular savings account. The current average rate of return on a basic money market account is 2.16 percent, compared to 0.49 percent on a passbook savings account and 0.48 percent on a statement savings account, according to data.

"For money that you plan to hold for a short period -- three months to a year -- and that needs to be liquid, a money market account is probably your best bet," says Ron Meier, a professor at the College for Financial Planning in Greenwood Village, Colo.

A trio of types
There are three types of money market accounts:

  • The basic account often requires a minimum opening deposit of $100.
  • The tiered account often requires a bigger minimum opening deposit than a basic account but pays a higher yield as deposits increase. For instance, an account holder might earn 2 percent interest with a $500 balance, but as much as 5 percent interest or more with a balance of $50,000.
  • The package deal offers a money market account in conjunction with savings, certificates of deposits and other bank investments. Banks and credit unions may offer a slightly higher yield to holders of these accounts than to basic- or tiered-account holders. Because this is a package deal, a minimum deposit may be waived.

Some financial institutions will link a money market account with a checking account, so if the holder needs to cover a standard check written yesterday, the money will automatically be transferred from the money market account. If the account holder keeps more than $2,500 in the money market account, some financial institutions will waive certain fees or provide added incentives, such as a free checking account.

What to look for
Here are some questions a consumer should ask before opening a money market account:

  • What is the minimum opening deposit?
  • What interest rate does the account pay?
  • Are there higher yields for bigger balances?
  • Do I earn higher yields on the entire balance or only part of it?
  • Is there a monthly maintenance fee?
  • Under what conditions can fees be avoided?
  • What is the fee if my balance drops below the required minimum?
  • Will the bank waive fees if I have other accounts with them?
  • Is there an extra fee if I close out my account early?
  • What's the fee for writing more than three checks a month on the account?
  • What's the fee for using automated teller machines?
  • Is there more than one version of a money market account? If so, what are the differences?

Money market accounts and certificates of deposits are two of the most popular forms of savings because they are safe havens for many individuals who want to avoid the risks of the stock market, say some financial planners.

Locating the best deals means shopping around. tracks money market account rates at banks and credit unions nationwide

-- Updated: July 5, 2005


Looking for more stories like this? We'll send them directly to you!'s corrections policy
Print   E-mail

CDs and Investments
Compare today's rates
1 yr CD 1.06%
2 yr CD 1.18%
5 yr CD 1.80%

  How long will your savings last  
  How to reach a savings goal -- with scheduled payments  
  Watch your savings grow with regular deposits  
CDs and Investing Basics
Set your goals with an investing plan.
Develop a savings plan
Every kind of CD explained
Treasury bonds and more
Pros and cons of annuities
All about IRAs
Bank or credit union?
Best rates for CDs, more

CD rates in your area  
Bankrate's Top Tier Award for best quarterly CD and MMA performers  
Track the prime rate, other leading rates  
Savings basics

- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here. ®, Copyright © 2015 Bankrate, Inc., All Rights Reserved, Terms of Use.