A money market account, or MMA, is a type of savings deposit account found at banks and credit unions. These lesser-known accounts walk the line between savings and checking accounts, offering some of the best features of both. MMAs offer safety, accessibility and a decent rate of return.
Money market accounts have a lot in common with savings accounts. Both products offer security and a predictable yield to encourage saving.
But there are some differences. For instance, money market accounts may carry a higher minimum balance requirement than savings accounts. In exchange for the higher balance requirement, MMAs can offer a higher rate of return as well.
The two products are also a bit different when it comes to liquidity. Like with a savings account, you’re limited to making six withdrawals or transactions per statement cycle. However, money market accounts may also provide a debit card and/or physical checks, like you would get with a checking account.
The similarities between checking and money market accounts mostly end at check-writing and ATM privileges, though. Other than the fact that they’re both insured and safe, MMAs are not designed to be used like a checking account. They aren’t for daily use.
Instead, money market accounts make good places to store cash for emergencies, major expenses or short-term goals. Ultimately, you can stash any money that you don’t need on a daily basis in a money market account.
Here are five reasons it makes sense to consider a money market account.
1. Accessibility of funds
Money market accounts have a certain degree of liquidity. You can withdraw or transfer money at any time for any reason without incurring a penalty. Transfers can be made to your checking or savings account, and MMAs can also provide check-writing and ATM card privileges for withdrawals. So, not only do you earn interest on your money, you’re able to get access to it whenever you need it.
The only caveat is that you’re limited to six withdrawals or transfers per statement cycle by law. However, ATM withdrawals and withdrawals made through a bank teller at a branch don’t count toward that limit.
2. High interest rates
Money market accounts have traditionally paid higher interest rates than savings accounts. The trade-off is that MMAs can have higher minimum balance requirements. Some money market accounts have minimum balance requirements of $5,000 or higher.
Currently, the average interest rate on a money market account is a dismal 0.24 percent, according to Bankrate’s weekly survey of institutions. Yet there are financial institutions paying 1.75 percent and higher. That’s why it’s so important to shop around for a great rate.
It’s worth noting that rates on savings accounts have been competing with money market account rates. These two savings deposit products are similar, so it’s crucial to weigh your needs before deciding on one or the other.
3. Personal checks
If you find yourself pulling out your checkbook from time to time, you will likely see money market accounts as a useful financial tool. These accounts may offer the capability to write up to six checks per statement cycle, assuming you’ve made no other kinds of withdrawals or transfers during that period.
This feature provides flexibility and liquidity that isn’t typically found in other types of savings products.
Safety is built into money market accounts offered by financial institutions. Look for banks to be insured by the Federal Deposit Insurance Corporation (FDIC) and credit unions to be insured by the National Credit Union Share Insurance Fund (NCUSIF). Money market accounts are insured by both organizations up to $250,000 per depositor, per insured bank or credit union and per ownership category.
Because these accounts are insured, you can rest easy knowing that your money will be there when it’s needed. As long as you keep your deposits under the maximum coverage limit, you’ll have the insurance of the FDIC or NCUSIF to back up your cash.
5. Access to funds via ATM
One of the most convenient privileges money market accounts can offer is access to an ATM card. To be clear, not all MMAs offer an ATM card, but some do.
It’s a feature of these accounts that can be very useful, since withdrawals from an ATM don’t count toward the six withdrawal or transfer limit per billing cycle. That means you can take money out whenever you need it without worrying about hitting your transaction limit for the month. But remember: it’s good to keep savings untouched, when possible.
Money market accounts can be an attractive option if you’re seeking a savings product with safety, high accessibility and decent returns. They act as somewhat of a middle ground between savings and checking — you get the high returns of a savings account with the liquidity offered by checking products.
However, MMAs aren’t for everyone. These accounts, like all financial products, have their advantages and disadvantages. Whether or not a money market account is right for you comes down to your goals. For example, if you need an account for daily expenses, you will likely be better off with a checking account. Or, if you don’t need access to your money for a specified period of time, you might earn a higher return by stashing cash away in a certificate of deposit.
It’s also important not to confuse money market accounts with money market funds. Money market funds, offered by brokerage firms and mutual fund companies like Vanguard, have a variable rate of return and can lose value if the market fails. Money market funds generally offer higher returns than money market accounts, but they carry more risk since they are not insured products.
Before you decide on an account, make sure to evaluate your goals and shop around for a banking product that fits your needs.