A money market account, which is different from a money market fund, is an FDIC-insured deposit account that invests in government and corporate securities and pays you interest based on current money market rates. Typically, money market accounts pay high interest rates compared with alternatives such as a traditional savings account, but there can also be more strings attached, such as balance requirements and transaction limits.
Is a money market account right for you? Here's what you need to ask before stashing your cash in one:
- What is the minimum balance requirement? One of the reasons money market accounts can offer better rates is that they usually require a minimum balance that must be met, or you may end up having to sacrifice the interest earned and possibly pay a penalty. Make sure you know the minimum balance requirement, which is usually between $1,000 and $10,000, and what the penalties are if your balance drops below it. If you won't have enough money in the account to meet the minimum and get the best rates, you might be better off putting your money in a regular savings account until you can save a little more.
- How often will I want to make a transaction from the account? Money market accounts often have a restriction on the number of transactions per month, and exceeding the number of transactions can result in a penalty. When doing your research, find out how many transactions you are allowed and what the penalties are for exceeding that number. Most money market accounts are limited to six withdrawals per month.
- What are the current money market interest rates? If you already have a traditional or online savings account, and you're thinking of opening up a money market account with the same bank, know that it pays to shop around. With the Internet, it's easier and faster than ever to compare money market account rates before making a decision.
- How do I prefer to access my money? Think about the ways you currently like to access and transfer funds. Does the account you're considering offer check writing, ATM access, and online access? Make sure the account and bank you choose will allow you to access your money in a way that works best for you.
- What sort of customer service experience do I prefer? When comparing money market accounts and financial institutions, ask yourself if you're the type of customer who likes brick-and-mortar banks and face-to-face service, or if you're perfectly happy to access and monitor your account via online channels. This can help you to eliminate financial institutions that won't meet your needs.
- What are the current rates for other types of savings accounts? If you won't need access to the cash for a while, weigh the pros and cons of CDs and money market accounts, and also be sure to compare current CD rates with money market rates. Sometimes CD rates are higher because CDs are less liquid than money market accounts. (An easy way to take advantage of higher CD rates without tying up too much savings in one place is to create a CD ladder.)
- What other account benefits do I get? Be sure to find out what other perks are offered with a bank's money market account. For example, some accounts offer overdraft protection: You link your money market account to a checking account, and if you overdraw from checking, the funds will be transferred from your money market account for a much smaller fee than you'd normally pay. Again, know your transaction limits if you ever need to use overdraft protection from a money market account.
The greatest benefits of money market accounts are that they generally offer favorable interest rates with a lot of liquidity, and like other types of deposit accounts, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Your money is safely growing, provided you meet all requirements, and you can easily access it.
The bottom line
If you've answered these seven questions and decided that a money market account is a good fit with your needs, SavingsAccounts.com makes it easy to compare money market accounts and find the right features and the best rates for your money.