Money market accounts can offer higher interest rates because they’re permitted to invest in certificates of deposit (CDs), government securities, and commercial paper, which savings accounts cannot do. Money market accounts offer slightly different features than those found with other bank accounts. Here’s a look at how they compare to traditional bank accounts offered by most full-service banks. A money market account can be a solid savings choice depending on your banking needs, but it may not be suitable for everyone. Consider the following pros and cons of money market accounts when deciding whether to park your money in a money market account.
MMA Fees and Minimums
One of the original attractions of MMAs was the fact that they offered a higher interest rate than savings accounts. MMAs can offer higher interest rates because they are permitted to invest in certificates of deposit (CDs), government securities, and commercial paper, which savings accounts can’t do. Money market mutual funds, however, aren’t insured by the government—even if you take one out at a bank. Ultimately, Rebell recommends speaking to a financial planner who can understand your individual situation when deciding on a financial portfolio.
Current CD Rates, August 2024: APYs Slowly Dip
If the depositor has other insurable accounts at the same bank (checking, savings, certificate of deposit), they all count toward the $250,000 insurance limit. For depositors who want to insure more than $250,000, the easiest way to accomplish that is to open accounts at more than one bank or credit union. Modern money market accounts, which often drop the term “deposit” from their name, are still used for saving and tend to offer interest rates that are close to top CDs and high-yield savings accounts. Many banks also offer money market accounts specifically for business owners. With a business money market account, you can earn interest on your funds. The minimum required balance for business accounts will typically be much higher than for a personal money market account.
Diversifying your savings strategies
They are able to offer higher interest rates because they’re permitted to invest in certificates of deposit, government securities, and commercial paper, which savings accounts cannot do. These accounts also offer easy access to funds as well as the flexibility to transfer funds between multiple accounts at the same institution. And unlike savings accounts, many MMAs offer some check-writing privileges and also provide a debit card with the account, much like a regular checking account. Unlike savings accounts, many money market accounts offer some check-writing privileges and also provide a debit card with the account, much like a regular checking account. For the best rates, you may want to start with our list of the best money market accounts.
The CIT Bank Money Market Account, for example, only requires an initial deposit of $100 to open an account, whereas opening the Northern Bank Direct Money Market Account requires a $5,000 initial deposit. Money market accounts often reserve the highest rates for higher balances, while the highest CD rates tend to be awarded for longer CD terms. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website.
Check-Writing and Debit Card
Money market accounts frequently come with ATM cards, debit cards, paper checks, or other ways to access your money that savings accounts don’t generally come with. Keep in mind, though, that money market accounts generally put limitations on how often you can pull money out of your account. If you’re looking for an account that offers maximum ease of access, a checking account might be a better fit. Like high-yield savings accounts, these accounts offer interest rates that rival and sometimes exceed those of money market accounts. They also share the high-yield savings accounts’ principal weakness, which is that they may have more complicated requirements, such as a minimum number of debit transactions each month. Unlike the various bank and credit union accounts described above, money market mutual funds, offered by brokerage firms and mutual fund companies, are not FDIC- or NCUA-insured.
Comparing money market accounts with other types of accounts can help you make an informed financial decision about where to allocate your money. For example, the average interest rate of a money market account is 0.66%, according to the FDIC. Additionally, the rate you get on your money market account is frequently dependent on how much money you have in your account. Another difference between CDs and money market accounts are the type of interest rate they each have. When you open a CD, you lock in a fixed interest rate for the entire CD term. Money market accounts have variable APYs, which means that the rate can rise or fall on any given day.
Banks can offer you this interest rate because they invest the funds you put in your money market account. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Although the names are similar, a money market account isn’t the same as a money market mutual fund. A money market account is a savings account whereas a money market mutual fund is an investment that generally offers better returns than a savings account. Easier access to funds than with traditional savings accounts because of debit card and check-writing features, which might be helpful in an emergency. You have the option to reinvest the dividends in your money market mutual fund. Interest in your money market account is automatically added to the principal and compounded.
- You may want an MMA as a place to park investable funds for quick access when the stock market makes a favorable turn or to cover emergency needs.
- If you withdraw your money (or part of it) early, you pay a penalty, usually in the form of lost interest.
- The best money market mutual funds offer a flexible investment solution for your money while earning interest.
- Money market accounts also generally offer higher rates than savings accounts, although exact rates vary by bank.
- They depend on things like current Federal Reserve rates, market conditions, and individual bank policies.
- The average interest rate for an MMA was 0.59% in May 2023 while the average savings account paid about 0.4%.
If you’ve ever opened a traditional savings account at a local bank, you probably realized quickly that it takes a lot of money and time to earn much in the way of interest. Here’s what makes money market accounts unique and what you need to know to determine if they’re a good fit. Some institutions require high minimum balances to open an account or avoid fees.
Our partners cannot pay us to guarantee favorable reviews of their products or services. Interest rates vary from bank to bank, but you can expect the amount of money you have in your account to play a role in what interest rate you get. Other considerations include market conditions and individual bank policies.
Many banks and credit unions also offer high-yield savings accounts and, depending on the institution, the interest rate may be better than on their money market accounts. A potential downside compared with money market accounts is that they may have more rules, such as requiring direct deposits. MMDAs were designed to compete with money market mutual funds, a type of investment account that threatened banks’ profits and deposits because consumers chose them for their higher rates. MMDAs were authorized to have no caps on rates, no maturity terms, deposit minimums of at least $2,500 and up to six monthly transfers. By 1986, the required minimum deposit on MMDAs fell to zero, though many accounts still impose their own minimums today. A money market account is a type of account that tends to offer a higher interest rate than traditional savings accounts.
You earn a higher rate of interest on a CD and receive your earnings plus principal balance once it matures. If you choose to cash it in before the maturity date, you forfeit the interest. Until the early 1980s, the government placed a cap or limit on the amount of interest banks and credit unions could offer customers in savings accounts. Many institutions offered small appliances (such as toasters and waffle irons), along with other incentives to attract deposits as they couldn’t compete when it came to interest rates. The big difference between money market accounts versus saving accounts is liquidity and interest rate. Many money market accounts give you paper checks, ATM cards, or other easy ways to withdraw money from your account.
While there are savings accounts with debit cards or ATM cards, most don’t offer them. Money market accounts also generally offer higher rates than savings accounts, although exact rates vary by bank. A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. One final thing to consider is what options are available for accessing funds in the account.
