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Interest rates for deposit products are booming. From traditional savings accounts to certificates of deposit, banks are boosting their APYs far beyond the paltry offerings that’ve defined recent years.
One of those deposit products seeing an increase in APYs is money market accounts (MMAs), which have traditionally offered higher yields than savings accounts and are generally more flexible than a CD. While the most competitive interest rates between these three types of accounts are about the same today, there are instances where you may want to go with an MMA over a savings account or CD.
Here’s how to determine whether an MMA is the best fit for your financial goals and four steps for getting the best rate.
What is an MMA?
With the recent APY boom for deposit products, it’s a great time to open an MMA, a savings account or a CD. But what’s the difference, and what are the pros and cons of opening an MMA?
Money market accounts act as a hybrid of other banking products. Like savings accounts, MMAs pay interest and are designed to keep you saving. But you generally need to park more money in an MMA than in a checking or savings account. Like checking accounts, MMAs can provide you with checks and a debit card, but the account is not meant to be used to pay for everything; there are often limits to how many transactions you can make, unlike with a checking account.
As for interest rates, MMAs, savings accounts and CDs earn about the same right now, though the very best CD will provide the highest yield in today’s market. But though a CD might pay you more, an MMA is more liquid, providing you better access to your money if you need it. (You’ll typically be charged a hefty penalty for withdrawing money early from a CD.)
How to determine if an MMA is right for you
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.
MMAs earn close to the same APYs as traditional savings accounts right now, but accessing money with a savings account isn’t as easy as it is with an MMA. Partially, that’s because MMAs typically offer check-writing privileges and may even come with a debit card.
As mentioned, the best CDs out there provide slightly higher yields than the best MMAs right now. If you don’t need immediate or occasional access to your money — in other words, if you’re willing to lock up your money for a longer time — a CD might be the way to go.
But if you’ve determined that an MMA is the best fit for you, here are some steps you can take to find the best rate:
1. 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, opening a bank account online isn’t limited to regular business hours. You can open a money market account at any time of the day or night.
2. Consolidate assets for a potential rate boost
Another way to potentially boost your MMA rate is to combine your assets to qualify for a higher rate. Some money market accounts offer tiered yields, so the bigger your balance, the higher your interest rate.
If you have multiple accounts, review how your money is performing and whether consolidating accounts could earn you a higher yield. A single account may provide a better yield.
3. Read the fine print
You’ll want to 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. Regulation D limits the number of transfers or withdrawals from money market accounts to no more than six each statement cycle. ATM withdrawals and withdrawals made through a bank teller at a bank branch don’t count toward those limits.
Since the start of the coronavirus pandemic, however, the rule has been suspended and the federal government has loosened some of the rules under Regulation D. As of June 2020, the restriction of six transfers or withdrawals from savings vehicles, including money market accounts, has been lifted.
This means that making more transfers or withdrawals will no longer necessarily result in a penalty or in the account converting to a checking account. This is now up to each bank to decide, so be sure to review the details before opening a money market account.
Though the rule change was made in response to the pandemic, it is expected to remain in place, according to the Federal Reserve.
It also pays to be aware of promotional rates, as an MMA’s advertised rate can change at any point. It’s possible for the APY to drop significantly after the introductory period ends.
Before signing up for a new account, note the minimum balance requirements, any monthly fees and whether the account includes check-writing privileges. Also, check to see whether account requirements make it difficult to earn the best yield or to avoid a fee.
4. Be wary of future regulation
Money market funds came under new regulatory scrutiny in the wake of COVID-19, following a run on the accounts occurring in response to the pandemic. The funds often hold short-term debt from corporations or municipalities, so when consumers withdraw a lot of money in a short period of time, as often happens in a crisis, it can threaten the overall security of the wider financial system.
In 2021, the Securities and Exchange Commission began exploring the possibility of new regulations for money market accounts. The agency is concerned that the short-term savings vehicles may be vulnerable to future crises. The proposed reforms could make it more difficult to withdraw money from these accounts or result in lower yields as a way to minimize the potential risk associated with a run on short-term funds.
Best money market accounts and rates
Compare 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:
- First Internet Bank of Indiana – 3.35-4.65%; $100 minimum deposit.
- Vio Bank – 4.17%; $100 minimum deposit.
- Sallie Mae – 3.60%; $0 minimum deposit.
- Ally – 3.40%; $0 minimum deposit.
- TIAA Bank – 1.60-3.45%; $500 minimum deposit.
Note: The annual percentage yields (APYs) shown are as of Feb. 8, 2023. The rates for some products may vary by region.
AJ Dellinger contributed to a previous version of this article.