What is a money market account?

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Last updated: 06/29/2020
What is a money market account?

The Advantages of a Money Market Account

What are the advantages of getting a money market account and how can it help your financial integrity? Money markets are designed for larger sums of money. Hence the higher balance requirements, which along with its notably higher interest rates can earn the account holder more money than a regular savings account.

If you’re worried about depositing a large stash of your money into a money market account because of accessibility - don’t be. Money market accounts have an advantage over other high-yielding interest accounts like a certificate of deposit, and it’s their ability to be accessible to account holders without slamming them with withdrawal fees or penalties. Certificate of deposits won’t allow you to withdraw funds until after the account has reached its maturity in its given term, and if you do, you can expect to pay for it. A money market is more flexible, allowing you to have access in short notice.

Other types of savings accounts limit the number of withdrawals you make. A money market has yet another advantage on these accounts. A standard money market account will allow you to write up to six checks per month or use your money market’s designated debit card up to six times per month, all without penalty. 

There’s also the benefit of having your money in an insured account. Money markets are typically offered by conventional financial institutions like banks and credit unions. If you choose to open a money market account, you can rest easy knowing your funds will be insured should anything happen. Money market accounts are designed for large sums of money, larger than a traditional savings account, so it’s certainly a considerable benefit having your finances insured.

The advantages of a money market include:

  • Higher interest rate that can earn you more

  • Doesn’t limit your access to your finances

  • You can withdraw funds up to six times by either writing checks or using your money market debit card

  • Your money is insured by your bank or credit union

Money Market vs Savings Account

Why choose a money market account over a savings account?  The answer is: you don’t have to.  You can certainly have both. Savings accounts are excellent for short-term goals, but with their low interest rates, your money really wouldn’t be earning as much as it would if it were in a money market account.

Generally, it’s recommended to have a savings account for emergency funds. Unlike a money market account, savings accounts don’t usually allow withdrawals, and the limited access can encourage less spending. Savings accounts do have the advantage of having minimal to zero fees and balance requirements, unlike its money market counterpart.

A money market account is a super-savings account. A higher interest rate, a higher balance requirement, and the added perk of six withdrawals, a money market can act as the perfect way to save up for medium-term goals. You still have access to your money, but unlike your savings account, you have to make sure you’re meeting all of the requirements so you can avoid being charged with fees.

Money Market vs Certificate of Deposit

Another account you might come across is a certificate of deposit account (COD). CODs are an excellent way to save for the long-term, but their attractively high interest rates come with catch of sealing you off from accessing your funds in the account until the COD term has reached maturity. For some CODs, your term length could be anywhere from a few months to 5-years. Most COD accounts require high minimum balances, even more so than a money market account.

CODs are often the alternative used in lieu of investing in the equity markets, which present a certain level of risk. If you can’t afford to stow your cash away for the dedicated term length for a COD account, then consider a money market account instead. A money market account allows you access to your funds without term lengths, just a requirement of a minimum balance and a restriction on the number of withdrawals.

Choosing the Right Money Market Account for You

You’ve decided a money market account is the best fit for you, now what? Your next step is choosing the right money market account for you. While there are numerous banks and credit unions offering them, there are a few helpful guidelines to keep in mind when searching:

  • Find a money market account with a high interest rate but no monthly fees. There will be plenty of money market accounts that offer a high rate, but some will have monthly account maintenance fees or other miscellaneous charges. The best account will have no fees, but still have a high interest rate you can take advantage of

  • Find a money market account that has a reasonable minimum balance requirement. Some banks and credit unions have an absurd minimum balance requirement that can reach up to $10,000 to open an account. That’s a lot of money to part ways with, and if you’re not comfortable doing so, then that particular account isn’t for you

There are numerous options for money market accounts, but the top contenders for this year are:

  • Marcus by Goldman Sachs: this money market has a high interest rate of 2% APY and a $0 minimum balance, making it easily manageable and beneficial

  • UFB Direct: with a 2.15% APY as one of the highest on the market, UFB Direct allows its account holders a chance to really grow their investments. However, the account does have a minimum balance requirement of $25,000

  • Citizens Access: Citizens Access Online Savings Account has a more reasonable minimum balance bottom line of $5,000 and a high APY of 2%

  • CIT Bank: Another option that presents a low minimum balance requirement of just $100 and an attractive APY of 1.85% is CIT Bank’s money market account
    Barclays: With a high APY of 2% and a $0 minimum balance, Barclays Online Savings Account option is one of the best on the market

Money Markets Can Help Grow Your Money

A money market should help your financial situation, not hinder it. These accounts aren’t checking accounts, but more like a savings account meant for larger balances with the advantage of a few monthly withdrawals that are free of charges and penalties. Unlike a COD, you aren’t locked into a term length that could prevent you from accessing your money for years. A money market account is an excellent middle-of-the-road option for those aiming to save for middle-term goals.

While finding an account with the highest interest rate is ideal, it’s just as important to select one that doesn’t have any monthly fees and a reasonable minimum balance requirement. There are plenty of money market accounts to choose, the same with the financial institutions that offer them, allowing for you to find the option that’s a perfect fit.  
Finance Guru

Finance Guru