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Key takeaways
- Money market accounts may offer competitive interest rates and easy access to your funds.
- You can often write checks and make ATM withdrawals with some money market accounts, providing flexibility.
- Some money market accounts may require higher minimum balances to avoid fees or earn top rates.
Earning a competitive yield, having easy access to your money and safety are just a few of the reasons to consider opening a money market account. A money market account, or MMA, is a type of deposit account that earns higher interest than a checking account, while providing more liquidity than a savings account. But these aren’t the only advantages of storing savings in this type of account.
Money market accounts are similar to savings accounts in that they are primarily designed for stashing extra money away while earning interest. However, they also come with some checking account features, including the ability to write checks.
To know if this type of account is right for you, consider these five benefits to opening 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/or ATM card privileges for withdrawals, as well as the ability to transfer money between a checking or savings account. An MMA could be worth opening for consumers who want to grow their savings but still want to be able to access the funds with relative ease.
Although it’s possible to withdraw or transfer money at any time, you’re generally limited to six withdrawals from a MMA each month. 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. Competitive rates
Money market accounts traditionally pay higher interest rates than checking accounts, currently on par with savings account rates. The current average yield for MMAs is 0.43 percent annual percentage yield (APY), compared with 0.59 percent APY for savings, according to Bankrate’s Sept. 30, 2024, weekly survey of deposit accounts. However, some institutions are paying up to 5 percent APY on money market accounts.
The trade-off is that MMAs can have higher minimum balance requirements — some as high as $5,000 or more. If you don’t meet these requirements, you may have to pay a high fee. 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 certificates of deposits. Some money market accounts permit a maximum of six withdrawals or transfers each statement cycle, which includes checks. The six withdrawal limit comes from a former federal regulation, Regulation D. The regulation has been relaxed, but many institutions still impose the transaction limit.
4. Safety
Safety is built into money market accounts offered by Federal Deposit Insurance Corp. (FDIC) banks and National Credit Union Administration (NCUA) credit unions. Both organizations insure money market accounts for up to $250,000 per depositor, per insured bank or credit union and per ownership category. As long as your deposits are within these limits at a federally insured financial institution, you can rest assured that the money will be protected in the event of a bank or credit union failure.
5. ATM withdrawals
One of the most convenient features some money market accounts offer is access to an ATM card, just as with many checking 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: money market accounts are still primarily for saving, and it pays to let your savings grow.
Bottom line
Money market accounts are an attractive option to consider if you’re seeking a savings product that earns interest, offers more withdrawal options and is insured as long as you’re within federal insurance limits and guidelines.
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, such as Fidelity and Vanguard. Money market funds generally offer higher returns than money market accounts, but they carry slightly more risk because they’re not insured by the FDIC or NCUA.
Before settling on a new account, evaluate your goals and shop around for a banking product that fits your needs.
Frequently asked questions
Former Bankrate writer René Bennett and freelancer Kevin Payne have contributed to an update of this article.
Read the full article here
