Earning a competitive yield, having easy access to your money and making sure it is protected are some of the main reasons to consider opening a money market account. But there are other factors worth weighing with this type of savings deposit account.
Here are five reasons to consider a money market account.
1. Accessibility of funds
Money market accounts earn interest while also providing a degree of liquidity. Most MMAs provide check-writing and ATM card privileges for withdrawals, as well as the ability to transfer money between a checking or savings account. You can withdraw or transfer money at any time, though you may be limited to six transactions each statement cycle. Exceeding the limit could result in a fee. Withdrawals made by ATM or through a bank teller at a branch, however, don’t count toward that limit.
2. Potentially higher interest rates
Though money market accounts traditionally have paid higher interest rates than savings accounts, the current average yield for savings (0.06 percent APY) and money market (0.07 percent APY) accounts are about the same, according to Bankrate’s weekly survey of institutions. And some financial institutions are paying 0.5 percent APY and higher on both money market accounts and savings accounts.
The trade-off is that MMAs can have higher minimum balance requirements — some as high as $5,000 or more. Or a bank may require a high balance to earn its top-tier APY for its money market account. Rates on savings accounts and money market accounts are competitive, so shop around to find the best rate.
3. Check writing
Writing checks from a money market account can be a useful feature, providing flexibility and liquidity that typically isn’t found with other types of savings products, such as savings accounts or CDs. Some money market accounts permit a maximum of six withdrawals or transfers each statement cycle, which includes checks. Following a relaxation of rules by the Federal Reserve, some banks have increased the number of transactions on savings deposit accounts beyond six per statement cycle.
Safety is built into money market accounts offered by Federal Deposit Insurance Corp. (FDIC) banks and National Credit Union Administration (NCUA) credit unions, which are
insured by the National Credit Union Share Insurance Fund (NCUSIF). Both organizations insure money market accounts for up to $250,000 per depositor, per insured bank or credit union and per ownership category. You can rest easy knowing that your money will be there in the event of a bank or credit union failure, as long as your deposits are within FDIC or NCUSIF insurance limits and guidelines.
5. ATM withdrawals
One of the most convenient features some money market accounts offer is access to an ATM card, just like many checking and savings accounts. ATM withdrawals don’t count toward the six withdrawal or transfer limit per billing cycle, which means you can take money out whenever you need it without exceeding your monthly transaction limit. But remember: It’s best to avoid withdrawals and let your savings grow.
Money market accounts are an attractive option to consider if you’re seeking a savings product that earns interest, offers withdrawal options and is insured as long as you’re within federal insurance limits and guidelines. Money market accounts act as a sort of hybrid between savings and checking accounts, offering the competitive returns of a savings account with some liquidity, similar to checking products.
Like all financial products, however, MMAs have their advantages and disadvantages and aren’t for everyone. Your financial goals can help determine whether a money market account is right for you. For example, if you need an account for daily expenses, a checking account is likely a better option. Or, if you don’t need access to your money for a specified period of time, a certificate of deposit will likely earn a higher rate of return.
It’s also important not to confuse money market accounts with money market funds, which are offered by brokerage firms and mutual fund companies, like Fidelity and Vanguard. They have a variable rate of return and can potentially lose value if the market fails. Money market funds generally offer higher returns than money market accounts, but they carry slightly more risk since they are not insured by the FDIC or NCUA.
Before you decide, evaluate your goals and shop around for a banking product that fits your needs.