If you want a better return on your savings but fear the commitment of a CD, it might be time for you to consider a money market account (MMA) for your shorter-term goals.
Money market accounts act as a bit of hybrid of other banking products. Like a savings account, MMAs pay interest and are designed to keep you saving. But you generally need to park more money in a money market account. Like checking accounts, MMAs can provide you with checks. But a money market account is not meant to be used to pay for everything; there are limits to how many transactions you can make unlike with a checking account.
Follow these five steps to get the best MMA rate.
1. Understand the main features and drawbacks
While money market accounts can offer higher APYs than traditional savings accounts, you can find higher yields elsewhere. For instance, you can find a 1-year CD that carries a 2.15 percent APY, while the best MMA rate is 1.90 percent APY.
Remember, a CD may pay you more, but a money market account is more liquid. It’s important to understand if that’s an acceptable trade-off. Evaluate your goals before opening an account.
It’s also important to consider that an MMA isn’t meant to be used like a checking account. While some accounts offer you check-writing privileges, you’re limited in the number of transactions you can complete each month. Money market accounts aren’t designed for those who need to make a lot of transactions each month.
Make sure you know what you’re giving up as well as what you’re gaining to determine if an MMA is the right move for you.
2. Determine how often you need access to your money
Next, it’s important to think about whether you need to access your money regularly. Money market accounts let you use them to pay a few bills and other expenses — as long as you follow account restrictions. They are not designed to be used like a checking account.
Even though some MMAs offer higher rates than what you would see with traditional savings accounts, they don’t always offer the best deals. Some of the best savings accounts still have higher rates. However, accessing money in a traditional savings account isn’t as easy as it is in a money market account. That is because MMAs can offer check-writing privileges.
However, if you want the yield, and don’t need immediate access, a CD rate might provide you with what you need — especially if you’re willing to lock up the money for a set time.
3. Shop around and consider online banks
If you want the best MMA rate, shop around to find the highest yields. While you can look locally, you might have better luck comparing money market accounts online.
Since online banks aren’t spending money on branches, they tend to pay savers a higher rate than what brick-and-mortar financial institutions offer customers. On top of that, you aren’t limited to regular business hours when you open a bank account online. You can open a money market account at any time of the day or night, and can accomplish the task in a matter of minutes if all goes right.
4. Consolidate assets for a potential rate boost
Another way to potentially boost your MMA rate is to combine your assets together in order to qualify for a higher rate. Some money market accounts offer tiered yields, so the bigger your balance, the higher your interest rate.
Review how your money is performing across your multiple accounts to determine how you might consolidate it to get a higher yield. You might be surprised to discover that you’re leaving money on the table by not combining your assets into a single account with a better yield.
5. Read the fine print
Finally, read the fine print as you compare money market accounts. Even though you may have check-writing privileges and a debit card, the account isn’t meant to be used like a checking account. A regulation puts restrictions on how many times you can withdraw money. According to Regulation D, you can’t make more than six transfers or withdrawals from a money market account per statement cycle. However, ATM withdrawals and withdrawals made through a bank teller at a bank branch don’t count toward these limits.
Be aware of promotional rates, too. A rate advertised on a MMA can change at any point. It’s possible you could end up seeing a dramatic drop in the yield after the introductory period ends.
Before signing up for a new account, understand the minimum balance, the monthly fees and the ability to write checks because they are going to range wildly.
Also, check to see whether the money market account requirements make it too difficult to earn the yield or to avoid a fee, too.
Best money market accounts and rates
Compare your options to make sure you’re really getting the best bang for your savings buck, based on your needs. Here are a few places to start when comparing money market accounts for the best MMA rate:
- TotalDirectBank: 2.00% APY; $5,000 minimum deposit
- UFB Direct: 1.90% APY; $25,000 minimum deposit
- BMO Harris: 1.85% APY; $5,000 minimum deposit
- Sallie Mae: 1.75% APY; $0 minimum deposit
Note: The APYS (Annual Percentage Yield) shown are as of Feb. 17, 2020. The rates for some products may vary by region.