If you want a better return on your savings but fear the commitment of a certificate of deposit, it might be time to consider a money market account (MMA) for your shorter-term goals.
Money market accounts act as a 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 than in a checking or savings account. Like checking accounts, MMAs can provide you with checks and a debit card. But a money market 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.
Here are six steps for getting the best MMA rate:
1. Understand features and drawbacks
Though money market accounts can offer higher annual percentage yields (APYs) than traditional savings accounts, higher yields can be found elsewhere. For instance, you can find a 1-year CD that carries a 0.7 percent APY, while the best MMA rate is 0.55 percent APY.
Remember, a CD may pay you more, but a money market account is more liquid. It’s also important to consider that an MMA isn’t meant to be used like a checking account. Though some accounts offer you check-writing privileges, the number of transactions you can complete each month will likely be limited. Money market accounts aren’t designed for those who need to make a lot of transactions each month.
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.
Though many 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. But accessing money in a traditional savings account isn’t as easy as it is in a money market account, because MMAs typically offer check-writing privileges.
Alternatively, a CD might provide you with what you need, if you want a higher rate and don’t need immediate access — especially if you’re willing to lock up the money for a longer 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, 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.
4. 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.
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. 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. But the rule change doesn’t require banks to suspend the six-transfer limit, so be sure to review money market account details before opening an account.
Since the coronavirus pandemic, 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 result in a penalty or in the account converting to a checking account.
Though the rule change was made in response to the pandemic, it is expected to remain in place, according to the Federal Reserve. “The Board does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on the Board’s interim final rule and, in the future, if conditions warrant,” according to a FAQ posted on the Federal Reserve website.
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.
6. Be wary of future regulation
Money market funds have come under new regulatory scrutiny in recent months, following a run on the accounts occurring in response to the coronavirus 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.
Earlier this year, 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:
- BrioDirect – 0.55% APY; $100 minimum deposit.
- Vio Bank – 0.55% APY; $100 minimum deposit.
- Ally Bank – 0.50% APY; $0 minimum deposit.
- Sallie Mae Bank – 0.50% APY; $0 minimum deposit.
- First Internet Bank of Indiana – 0.50% APY; $100 minimum deposit.
Note: The annual percentage yields (APYs) shown are as of Sept. 22, 2021. The rates for some products may vary by region.