A money market account, or MMA, is an account that typically comes with a higher interest rate than other savings accounts.
If investing in stocks and bonds is not something that appeals to you, but you would still like to make your money grow safely, opening a money market account could be the right move.
However, there are still some factors to consider before making a decision.
Money market accounts often have higher interest rates
The main appeal of money market accounts is that they usually offer higher interest rates than savings accounts, though this is not always true on a case-by-case basis. That’s because deposits in money market accounts are held in government securities, commercial paper and certificates of deposit, returning higher yields than you would normally get from a savings account.
MMAs also provide the added bonus of security comparable to that of a traditional savings account. According to NerdWallet’s Margarette Burnette, these accounts are backed by the Federal Deposit Insurance Corporation for up to $250,000.
Money market accounts require a higher minimum balance
Compared to a regular savings account, which may have a minimum balance requirement, a money market account is likely to require an even greater minimum daily balance as well as a higher minimum deposit requirement when you want to put money into the account. The minimum requirement may also be based on a tiered system.
With more money in the account, you can benefit from higher interest rates. If you are under your minimum requirements, you could be hit with expensive maintenance fees. Because of this, it’s best to open an MMA if you are sure that you can maintain its conditions and reap the full benefits of using it for saving.
Money market accounts offer a limited number of traditional checks
One of the upsides of money market accounts is that they offer check-writing privileges, like a checking account but unlike a regular savings account. In fact, this is often the only way to withdraw money from a money market account, as not all of them offer debit cards.
However, Regulation D of the Federal Reserve limits your withdrawals to six per month. If more than six withdrawals occur in a month, you could be assessed fees or even have the status of the account changed to that of a non-interest-bearing checking account, according to Investopedia’s Richard Best.
One of the advantages of MMAs is that they can act as overdraft protection to back up your checking account, which may be more cost-effective than other methods. However, keep in mind that overdraft protection transfers count toward your withdrawal limit.
Should you open a money market account?
Money market accounts can provide a safe place for your money to grow, but they have limitations.
Burnette recommends shopping around before deciding to open an account, as not all of them offer great rates. Some are even lower than high-yield savings accounts that have no minimum deposit requirements.
If your financial institution’s MMA offering has a high interest rate and you have a substantial nest egg that you can deposit without having to touch for a long period of time, you stand to pull in a substantial amount of interest.
Money market accounts are a great alternative to the traditional savings accounts since they provide benefits similar to that of a checking account if you need to make the occasional withdrawal.
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Check with your financial institution to explore all of your investment management options. It’s possible they offer even more fruitful ways to store your money.
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