What is a Money Market Account? Simple answer – it's a hybrid checking and savings account that earns high interest.
Money market accounts work much the same as other bank deposit accounts except the bank pays interest on your balance periodically according to the terms of the account. Money market accounts are a very popular savings vehicle but they are not long-term investment vehicles.
With money market accounts you earn interest on your money and they are FDIC insured up to $250,000.
Banks and credit unions offering money market accounts may have minimum deposit amounts or minimum balance requirements.
Money market accounts offer a great addition to your financial accounts for their flexibility and high-interest rates.
»For more savings options, check out Top Money Market Rates for 2020
5 Facts About Money Market Accounts
1. Money market accounts pay higher interest.
Money market accounts generally offer better interest rates than you’ll get from a traditional savings account. The interest is compounded daily. Plus, if you open a money market account at an online bank, you'll likely get much higher rates than a traditional brick-and-mortar bank.
2. Money market accounts make it easy to access your money.
Because a money market account combines features of both a checking and savings accounts, customers can access funds the same way funds in a checking account are accessed. Most money market accounts allow you to write checks or withdraw cash, and some offer a debit card that you can use to make purchases. That means you can also add money to a money market account whenever you like, unlike with certificates of deposit (CDs.)
Money market accounts allow you to earn interest on your money while keeping your money accessible.
Money market accounts are great for things like:
- Emergency funds
- Saving for a major purchase
- Vacation funds
- Tuition funds
- Budgeting for quarterly tax payments
3. Money market accounts may require a large minimum balance.
Because of their competitive rates are good for people with high account balances. You may need to maintain a certain balance in the account at all times in order to earn the highest interest rate or avoid paying monthly fees, which eat into your return.
Opening a money market account can be worth the return, even with the minimum balance restrictions. For instance, the average savings rate is currently 0.05% according to the FDIC.
4. Your balance is safe with money market accounts.
The Federal Deposit Insurance Corporation (FDIC) insures money market accounts up to $250,000 per depositor. That means you won’t lose your money in the unlikely event of a bank failure. Money market accounts are not money market mutual funds although they have similar names. They are entirely different products. A money market mutual fund is an investment product that is not FDIC-insured.
5. Restrictions can eat into your profit.
Be mindful that money market accounts come with federal withdrawal restrictions like savings accounts. They are still subject to the same withdrawal limitations of Regulation D that restricts activity. You have access to cash in a money market account, but there are transaction limits. You won’t be able to make payments with your checkbook or debit card more than six times per month by law.
However, there are some unlimited transactions that do not apply toward your limit of six. These include withdrawals with a teller at a bank location and withdrawing money from an ATM.
Who should open a money market account?
Even if a bank requires a high minimum balance, a money market is good for saving money. Everyone needs an emergency fund. You may as well get as much bang for your buck. If you want the flexibility to write a limited number of checks, access to an ATM card all while earning a higher than average savings rate, a money market account may fit the bill. Your money is not locked away, like in the case of a Certificate of Deposit.
Check out these Money Market Accounts
CIT Bank – 0.55% APY
CIT Bank is an online bank that offers competitive annual percentage yields (APYs) on its savings accounts. The 0.55 APY is one of the highest APYs in the market. It only requires $100 to open.
- Earn one of the nation's top rates — More than 16x the national average.
- Make at least one monthly deposit of $100 or more to earn the interest rate.
- Quick and easy access to fund.
- 24/7 secure & award-winning banking
- Deposit checks remotely and make transfers with the CIT Bank mobile app
Chime: 1.00% APY – $0 minimum opening deposit
Chime offers a high-interest savings account with no fees. While it is not a traditional money market account, it does offer some of the same benefits. The 1.00% APY makes it a top contender as a savings vehicle. The only requirement is that you must first open the Chime Spend Account which is essentially a checking account. Your savings account will be connected to the checking account which gives you access to a visa debit card. Customers also get quality mobile banking tools including mobile deposit capability to easily manage your money.