Money Market Accounts: Earnings and Access

Finances
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A money market account is an account that offers attractive features, such as interest on your deposits, easy access to your money, and the ability to write checks. Money market accounts combine the best features of both checking and savings accounts, but every type of account has its pros and cons. You get certain features with these types of accounts, while you might have to give up a few others.

Earnings and Access

Money market accounts, like savings accounts, pay interest. They’re a safe place to store cash because they’re FDIC insured or, in the case of a credit union, NCUSIF insured.

You'll often find better interest rates on a money market account than you’ll get from a traditional savings account, especially with larger account balances, so they’re usually somewhere between a certificate of deposit (CD) and a savings account when it comes to earning potential.

Like checking accounts, money market accounts make it easy to access your money. Most accounts allow you to write checks or withdraw cash, and some offer a debit card that can be used to make purchases. This easy access, combined with a competitive interest rate, is what traditionally made money market accounts unique. In recent years, reward checking, interest checking accounts, and online banks have become more popular and offer the same benefits, but sometimes you’ll get a better deal from a money market account.

The Fine Print

Money market accounts have some great features, but you should be aware of a few things before opening an account.

Minimum balances: Money market accounts usually require a relatively large minimum balance. You can generally open a savings account, especially an online savings account, with a small deposit, but money market accounts might only be available if you have at least $2,500 to place in an account. If your account balance falls below the minimum, expect to pay monthly fees, which can eat into your return.

Transaction limits: You have access to cash in a money market account, but there are limits. You won’t be able to make payments with your checkbook or debit card more than six times per month by law, and some banks only allow three payments per month. You can withdraw cash as often as you like, but these accounts aren’t as flexible as your checking account when it comes to everyday use.

The right choice? Money market accounts are a great tool, but they might not be the right tool for your needs. Could you earn more by using CDs? If you use a series of CDs known as a CD ladder, you can earn decent returns while keeping some of your money liquid—with more of it becoming liquid sooner— and minimizing early withdrawal penalties.

If you’re investing for the long term, talk with a financial planner about what mix of investments can best help you reach your goals.

Is it safe? If you want safety, make sure you use a money market account from a bank or credit union, which will insure your funds. Don't confuse these accounts with money market mutual funds, which have their place, but are not the same thing. Ask your bank or credit union to verify that your funds are insured, and keep your deposits below the maximum covered limits.

The Best Application

Money market accounts are useful for money that you might need in the relatively near future. They allow you to earn a small return while keeping the funds safe and accessible. They’re especially useful for large, infrequent expenses such as:

  • Emergency funds
  • Budgeting for quarterly tax payments
  • Tuition

Again, this isn’t the best place to keep funds for regular expenses because of the limits on how many check-based payments you can make. That said, you could keep funds for a few of your largest monthly expenses, such as your mortgage, in a money market account to earn a bit more interest.

Money Market Accounts vs. Money Market Funds

A money market fund is not the same thing as a money market account. Money market funds are mutual funds that buy securities, and it's possible to lose money using money market funds. They're not guaranteed by the FDIC or NCUA like your accounts held at a bank or credit union. Money market mutual funds might come in more varieties and offer the potential for tax benefits, but a money market account offers you safety.