Money market accounts are primarily designed for short-term savings goals, allowing savers to potentially earn bit more interest for near-future needs than a traditional savings account.
The area where money market accounts vs savings accounts share similarities is a minimum balance requirement to open and in some instances a minimum balance to earn interest.
Money market account minimum balance requirement
Depending on your bank or credit union a money market minimum balance requirement can be as little as $100 up $1,000 or more.
Here's a breakdown of considerations:
Account maintenance
Banks and credit unions incur costs for maintaining accounts, including staffing, technology, and fraud prevention. The minimum balance aims to ensure the account generates enough revenue (through fees or interest earned on your deposit) to at least cover these costs.
Account activity
Similar to other deposit accounts, banks and credit unions aim to cover the operating costs associated with maintaining the account, including personnel, technology, and security. Setting a minimum balance helps ensure the revenue generated (through fees or interest earned) covers these expenses.
Transaction management
Money market accounts typically offer limited free transactions per month. The higher potential number of transactions compared to a savings account can contribute to higher maintenance costs, influencing the minimum balance requirement.
Interest rates offered
Money market accounts generally offer higher interest rates than savings accounts. To maintain this benefit, banks might set a higher minimum balance to ensure they earn enough income to pay the best money market account rates while covering operational costs.
Market competition
Banks and credit unions compete for customers, and minimum balances can be used as a competitive tool. They might adjust their requirements based on competitor offerings to attract specific customer segments.
Additional Factors:
Account tiers
Some institutions offer tiered money market accounts, with higher minimum balances required for tiers offering better interest rates or additional features.
Target customer base can also determine money market account balance requirement
Banks might set different minimum balances for money market accounts targeted at different customer groups. For example, an account designed for small businesses might have a higher minimum balance compared to one aimed at individual savers.
Final takeaway
Money market accounts offer a safe place to store your money and are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, making them a low-risk option.
