The interest you earn on a savings account is nice, but the accessibility of your funds in a checking account really can’t be beat. Have you ever thought about getting the best of both worlds? Luckily, there are options out there beyond the basics. A money market account offers a little bit of both checking and savings. Read our money market account guide below and allow us to explain how they work and how you can sign up.
Money Market Account Defined
Put simply, a money market account (MMA) is a type of savings account offered by banks, credit unions and other financial institutions. This type of account accrues interest on funds you deposit, just like a savings account. In fact, most money market accounts have higher interest rates than standard savings accounts.
Money market accounts come with other perks too, though. Like a checking account, you can write checks and deposit or withdraw funds with a debit card. However, you are limited to only six withdrawals a month by federal regulation. If you go over that limit, your bank can close it, levy fees or convert the account to a checking account.
Money marked accounts essentially offer a combination of features from typical savings and checking accounts through their own hybrid product. Some bankers compare it to a high-yield savings account, but it’s really much more. Check out how the features stack up with other account types below:
|Bank Account Comparison|
|Savings Account||Checking Account||Money Market Account|
|Insured by the FDIC||Yes||Yes||Yes|
|Earns Interest||Yes||Usually No||Yes|
|Can Write Checks||No||Yes||Yes|
|Comes With Debit Card||No||Yes||Yes|
Money market accounts were originally developed so banks could compete with high-yield yet liquid financial products that Wall Street was launching, like certificates of deposit. While they work very similarly to savings accounts on the consumer side, banks can use your MMA funds differently.
Based on hours of analysis of the most popular MMAs, SmartAsset’s banking experts came up with the best money market accounts for 2018.
It’s important to note that a money market account is not a money market fund, which is an investment that could increase or decrease in value based on market behavior.
How Do Money Market Accounts Work?
Money market accounts work similarly to a savings account. You can deposit and withdraw funds into a money market account as you see fit, but you’re usually limited to six withdrawals per month in accordance with Regulation D. That means you can use checks and a debit card, but only for six transactions a month. Money market accounts often come with minimum required balances. If you make more withdrawals than allowed or don’t maintain your required minimum balance, banks will often charge a fee.
Beyond providing funds for bank loans like a regular savings account, your money market funds can also be used in low-risk investments like CDs and bonds. Since they provide this added value for banks (and they usually have higher minimum balance requirements), banks are willing to pay higher yields on money market accounts.
Since rates are often tiered, they become a more attractive tool the more money you’re willing and able to put into them. Interest is compounded either daily or monthly and interest is usually paid out monthly. Some banks, however, will make your interest payments quarterly.
Pros of a Money Market Account
There are many benefits for keeping your savings in a money market account. The main reason people stash their funds this way is because money market accounts can yield higher interest than both a checking account or a simple savings account. Many savings accounts earn as little as 0.1% interest. You stand to earn more with a money market account. Think between 1% – 2% depending on the institution.
Another big advantage of money market accounts is liquidity and flexibility. Most MMAs allow you to make up to six transactions or and write up to three checks a month. Some also allow you to link a debit card to your account. There are typically no fees for writing checks and no penalties for large withdrawals as there can be with other high-yield accounts.
Money market accounts are also extremely safe. Money market accounts from a bank are backed by the Federal Deposit Insurance Company (FDIC) up to $250,000 per account and those from credit unions are backed by the National Credit Union Administration (NCUA). That means your principal balance is covered against loss if something goes wrong with your bank, credit union or financial institution. Some accounts could be insured for even higher amounts if they’re linked to property investments.
Cons of a Money Market Account
Of course, money market accounts aren’t perfect. While they have a great combination of benefits, they also have some downsides to offset their higher returns. For one, some people can’t afford a money market account. Banks often require a minimum deposit to open the account, then a minimum balance to keep in the account. It’s usually much higher than regular savings accounts. This often means $5,000, but can be up to $10,000 at some banks. As stated above, you need to pay a fee if your balance dips below the minimum requirement.
Since they’re a type of savings account, money market account holders can only make six withdrawals, transactions, online transfers, or debit purchases and three check payments every month or payment cycle per FDIC rules. This forces users to treat their MMA funds as true savings. If you want the ability to write more checks or make more frequent withdrawals, you may want to look into a high-interest checking account.
Furthermore while money market accounts have higher rates than most standard savings accounts, you could find better earnings elsewhere. If you’re able to store your funds for a long period, compare your money market account rates to what you may earn from other savings vehicles, like stocks, mutual funds or CDs. If you can earn more elsewhere, it may be a better idea. Just keep in mind that higher-earning accounts usually charge a penalty for early withdrawals.
What to Use Money Market Accounts for
Money markets are a safe place to keep your money accessible while it earns some interest. As long as you can meet the minimum balance (if there is one) and only need to use your funds a few times a month, then an MMA is a great low-risk savings vehicle. You should consider a money market account if:
- You tend to keep high amounts of money in your checking account
- You want access to your savings in case of emergency
- You need the ability to write a few checks each month
- You want to make a few debit card transactions a month
Money market accounts aren’t the best place to keep money for regular expenses because there are limits on how many transactions you can make a month. They are, however, extremely useful for money that you will (or might) need in the near future. This makes money market accounts great for large and infrequent expenses, like tax payments, college tuition and vacations. They’re also a great place to build your emergency fund. You want to keep this money somewhere separate from your regular spending account so you aren’t tempted to use it. An MMA will help it grow faster.
Who Offers Money Market Accounts?
Money market accounts are available through most banks, credit unions or other financial institutions. You’ll want to find a money market account with few or no monthly fees and high interest rates. You should also ensure the minimum deposit and balance is reasonable. Additionally, look for perks like remote check deposit, online bill pay and 24/7 account access.
Check out a few of our top picks for money market accounts below.
Ally Money Market Account
The Ally Money Market Account is one of our favorites. It has a high interest rate (0.9% – 1% APY depending on your balance), and there are no maintenance fees, minimum deposits or minimum balance requirements. Perhaps best of all is the customer service and easy-to-understand terms. You’ll also get unlimited ATM withdrawals with this account (other withdrawals are limited to six a month). Plus, Ally will reimburse up to $10 per month on fees spent at other ATMs. Last but not least, as a primarily online institution, Ally provides constant account access in addition to mobile check deposit and an EMV chip technology debit card.
Just keep in mind that you need to use a check, online transfer, direct deposit or wire transfer to deposit money.
EverBank Money Market Account
We also like EverBank, which is set apart by its interest rate. The bank offers an introductory 1.50% for new customers in their first year. There’s no minimum required balance and benefits include check writing, mobile check deposits and ATM withdrawals. It’s not No. 1 because you’ll need at least $5,000 to open an account and the rate decreases over time.
Capital One Money Market Account
Next up is the Capital One 360 Money Market account. The APY for this account is either 0.85% or 1.60%, depending on how much you have in your account. To get the most of the 360 Money Market account, you’ll need to keep $10,000 in it. Though keeping more in your account is beneficial, there is no minimum deposit required.
The only fees you may face are for outgoing domestic wires and statement copies from the last two years. It’s also important to note that the 360 Money Market account does not come with checks or debit cards and interest compounds monthly.
Sallie Mae High-Yield Savings Account
Though known best for student loans, Sallie Mae also has a money market account. The company offers a competitive interest rate of 1.65% APY. The account doesn’t require a minimum deposit or minimum daily balance. Sallie Mae also doesn’t charge maintenance fees either. You can write checks and deposit checks on your phone, which cuts down on checking account transfers. The Sallie Mae Money Market account also comes with free transfers. There’s even 24/7 online account access. Your funds would be slightly harder to access though, as there are no ATM withdrawals.
Synchrony Money Market Account
We also like the money market account from online bank Synchrony. It comes with 1.05% APY without requiring a minimum balance or charging monthly service or transaction fees. Account holders can write checks and make withdrawals online, through a mobile app, or by using their ATM cards. It’s really one of the best options for those looking for an easily accessible high-yield account.
If you want to use a money market account to save for retirement, Synchrony also has a traditional or Roth IRA money market option. At 1.05%, the interest is much lower than other investments, but your funds would be protected by the FDIC.
Dime Direct Money Market Account
DimeDirect also has a money market account option. It doesn’t carry check-writing capabilities or come with a debit card, but it has higher interest rates than the Dimes savings account. Accounts with balances below $500,000 will earn 1.35% and accounts with balances above $500,000 earn 0.2% APY. Interest is compounded daily and credited monthly or when the account is closed.
There is a minimum deposit amount of $1,000 and a maximum deposit limit of $500,000, but no minimum balance requirement. In addition to the minimum deposit, you’ll have to sign up for eStatements on online banking. Then, there are no fees for account maintenance or paying bills.
Northpointe Bank Liquid High-Yield Money Market Account
Michigan’s Northpointe Bank has a Liquid High Yield Money Market Account. The account doesn’t have fees or require a minimum daily balance, but you do need at least $1,000 to open one. The rates aren’t crazy high, but they do increase with your account balance. Anything below $2,500 earns 0.2% APY. Balances between $2,500 and $24,999 earn 0.25% APY; balances between $25,000 and $99,999 earn 0.4% APY and anything over $100,000 earns 0.5% APY. Just keep in mind that the Ultimate Savings product has higher rates, so look at all your options before committing to this money market account.
These are just a few of the best money market accounts. Discover, Bank of Internet, All America, UFB Direct and Pacific National Bank are some other high-ranking options out there for you to choose from.
Tips for Opening a New Bank Account
- Before you open another account at your regular bank, take a chance to see if there’s a better option out there for you. It pays to comparison shop and find the best bank for your hard-earned dollars. It may seem like a pain to have accounts in more than one spot, but you can stand to save much more money giving another institution a try.
- On that note, have you checked out your local credit union? These overlooked financial institutions may not always have the best web presence, but often offer some of the most competitive savings rates.
- Wondering when it’s right to open a joint account or add a significant other to an existing one? It can be a tricky decision. Luckily, SmartAsset has given the topic some thought.
Photo credit: ©iStock.com/simonkr, ©iStock.com/honglouwawa,©iStock.com/kitzcorner