Looking for a way to earn a higher interest rate with greater flexibility? Consider a money market account.
When it comes to saving money, you have a few choices: You can put your money in a traditional savings account, buy a certificate of deposit (CD), or put it in a money market account (MMA). Which is better? That depends on your needs and goals. In this article, we’ll look at how money market accounts work and five reasons why an MMA might be a good fit for you.
What Is a Money Market Account?
Let’s start with the basics. You can think of a money market account as something as having key features of both savings and checking accounts because it gives you some of the key features of both. Money market accounts generally pay higher interest than traditional savings accounts while giving you some of the flexibility of a checking account, including the ability to write checks. Also, unlike a CD, an MMA won’t tie up your money for a specific term.
One of the most attractive benefits of a money market account is compound interest, which can really help grow your savings. MMAs typically compound your interest daily and pays out monthly. This means you earn money on both your savings AND the interest, so you earn more over time.
Interest rates for money market accounts are based on balance tiers. The higher the balance, the higher the interest rate. Jumbo accounts require a higher deposit amount – generally $100,000 or more. These accounts offer higher annual percentage yields (APYs) than accounts that have lower balance requirements. A jumbo account might also offer an even higher rate if your balance exceeds a certain tier.
You may not need a jumbo account, but a traditional MMA could be a good choice to help you reach your savings goals and enjoy greater flexibility. Let’s look at the benefits.
5 Reasons to Open a Money Market Account
If you want to put away money for a particular savings goal, a money market account can be a good choice, especially if you’re looking for a higher rate but still want some flexibility when it comes to accessing your money.
You can use an MMA to save for big expenses like a down payment on a house, but they’re also great for home improvements, your next car, or other big expenses.
Depending on the financial institution, MMAs might have a minimum opening deposit, so it’s a good idea to research your options before you sign on the dotted line.
You can count on an MMA to keep your money safe. These accounts are insured by the Federal government for up to $250,000 per depositor, so you can start saving with confidence. And, unlike playing the stock market, you don’t have to worry about market volatility wiping out your gains.
3. Higher Interest Rates
Another benefit of MMAs is that they typically pay higher interest rates than traditional savings accounts. Once again, it’s wise to do a little research and shop around for the best rate. If a savings account pays 1%, an MMA might pay 2% – which can make a lot of difference if your account balance is high.
Additionally, when interest rates rise, money market yields also rise, helping your cash grow at a faster rate. You won’t get that benefit with a CD, which generally has a locked-in rate until maturity.
Because an MMA doesn’t have a term requirement, your funds are much more accessible. This is helpful if you need to tap your account to pay for an unexpected repair or other spending emergencies. With an MMA, you can write a check, go to the branch, withdraw from an ATM, or transfer funds online. Keep in mind that MMAs can come with transaction restrictions, so it’s important not to exceed your monthly limits.
If you’re looking for flexibility, an MMA is a better choice than a CD, which comes with penalties for early withdrawals.
5. Account Benefits
MMAs come with the same perks you’d get from a checking account: debit cards, ATM access, the ability to write checks, and online banking. Also, ATM (and branch) withdrawals don’t count toward the transaction limits, which means you have greater access to your money. Just remember that MMAs are intended for saving so the less you take out, the more your money can grow.