Money market accounts can be found at many banks and credit unions. They also give savers some advantages.
“A money market savings account – often referred to as an MMA – is an account that offers the potential for higher earnings than a standard savings account, and commonly has tiered rates that may change weekly based on the money market environment,” says Jaspreet Chawla, senior vice president of savings products at Navy Federal Credit Union.
“[These] are an easy way to earn more than a basic savings account while still having all the same benefits you might be accustomed to enjoying, including easy access to your money and the ability to write checks and withdraw money from an ATM.”
Are money market accounts safe?
Money market accounts are safe if they are with federally insured banks or credit unions.
Just make sure your financial institution is a member of the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). These institutions insure deposit accounts up to $250,000 per depositor, per insured bank, per account category.
That means if your bank fails, your deposits are protected, up to the limit.
What makes a money market account unique?
Money market accounts straddle the line between savings and checking accounts. They are good for growing your money because they pay interest. At the same time, they sometimes come with the ability to write checks and a debit card for easy access to cash.
Money market accounts are generally limited to six withdrawals or transfers per statement cycle. If you exceed the limit, you will likely pay a fee for each over-the-limit transaction (ATM withdrawals are not part of the limit). Your bank may also convert your MMA into a checking account that does not pay interest.
“While your funds may be easily accessible for withdrawal, you won’t have the same merchant payment options as you do with a traditional checking account,” says Chawla, noting that you can’t use the debit card for point-of-sale transactions and might not be able to use your money market account for electronic bill payment.
Is a money market account the same as a money market fund?
As you compare MMA options, be aware that there is another financial product with a similar name that is fundamentally different from a money market account. It’s called a “money market fund,” also known as a “money market mutual fund.”
Money market funds are available at banks, brokerage firms and investment fund companies. They are a type of mutual fund that is invested in short-term securities, such as U.S. Treasury bills. And while they are considered a low-risk investment, they are not federally insured.
Who should get a money market account?
Money market accounts are a good choice for anyone who wants to earn additional money without taking on risk.
If you have a large chunk of money earning little to no interest, a money market account should be on your radar. It’s also a good place to park your emergency funds.
How much money should you keep in a money market account?
How much cash to keep in your MMA depends on your financial situation and the policies of your bank.
Navy Federal Credit Union’s Chawla points out that many financial institutions require account holders to meet certain balance thresholds before they can earn interest. At Navy Federal, for example, you must deposit at least $2,500 into your MMA to earn interest.
To earn the highest yield on a money market account, you often need to maintain a significantly higher balance. For example, at Discover Bank, you need a balance of at least $100,000 to get the top-tier interest rate on a money market account.
“If you are not able to meet the minimum balance requirement to earn dividends from your financial institution, a money market savings account might not make sense for you,” Chawla says.
However, if you have no trouble meeting the minimum balance requirement, it could be beneficial to compare the best money market account rates with other investment opportunities that have higher earning potential – but also more risk.
You could put a portion of your cash in a money market account and seek higher returns by investing another portion in stocks, bonds or other assets.
First, though, make sure you have enough cash set aside to cover three to six months of your living expenses. Your emergency funds should go into your MMA. Once you meet that threshold, you can consider other, higher-growth opportunities.
Where to maximize your money market account earnings
The best money market account rates are often found at online banks. Without big branch networks to maintain, online banks can usually afford to pay a higher yield. You can also find competitive rates at credit unions.
Be sure to compare the best money market rates and scrutinize minimum balance requirements to figure out where you can earn more interest.
Chawla notes that share certificates (credit union CDs) are likely the best option for maximum guaranteed returns, especially for those who can’t meet money market balance thresholds.
A money market account is a very safe product to help accelerate your savings. If you have a lot of cash on hand, these accounts are a good place to watch it grow.
— David McMillin wrote a previous version of this story.