Being able to save money matters for reaching your short-term or long-term financial goals, or simply for creating a cushion for those inevitable rainy days. When deciding where to keep your savings, a money market account is one option to consider.
Money market accounts share some things in common with savings accounts, but they have a few distinctive qualities. Digging into how money market accounts work, and the advantages of using a money market account versus other savings options, can help you decide where one fits in your financial plan.
Quontic Bank Money Market Account
Annual Percentage Yield
5.00%
Minimum Deposit Requirement
$100
Monthly Maintenance Fee
$0
5.00%
$100
$0
What Is a Money Market Account?
A money market account (MMA) is a type of deposit account. Online banks, traditional brick-and-mortar banks and credit unions all can offer them alongside other savings options. Depending on the bank, these accounts also may be called money market savings accounts (MMSAs) or money market deposit accounts (MMDAs).
A money market account shouldn’t be confused with a money market fund. Money market funds are investment vehicles you can use to invest in short-term debt securities such as Treasury bills. Money market funds can be opened at an online brokerage and they carry more risk than money market savings accounts.
How Does a Money Market Account Work?
Money market accounts allow you to save money while earning interest on that savings. Interest rates can be tiered based on the balance in the account, although some banks may pay one flat rate across all balances. What makes money market accounts different from traditional or high-yield savings accounts has to do with how you can access funds within them.
Ordinarily, your options for withdrawing money from savings may be limited to electronic transfers or official bank checks. With a money market account, you may also have the option to withdraw money using a debit or ATM card or by writing personal checks.
In terms of how you can add money to a money market savings account, the options are typically the same as they would be for a checking account. So, for example, you may be able to deposit checks using mobile check deposit, add checks or cash at the ATM or teller window, transfer money between accounts electronically or schedule a direct deposit into your account.
As with other bank accounts, money market accounts may be subject to daily, weekly and monthly limits on the amounts you can withdraw. They also can be subject to funds availability rules that dictate when you can withdraw your money after making a deposit.
Banks can establish minimum balance requirements for money market deposit accounts, including setting a minimum deposit to open one. At some banks, this may be as low as $1; at others, it may be as high as $10,000. Banks also can charge fees for money market accounts, including monthly maintenance fees or excess withdrawal fees.
Excess withdrawal fees can kick in if you exceed the allowed number of withdrawals each month. Previously, federal guidelines limited you to six withdrawals per month from a savings or money market account, but this rule has been temporarily suspended during the COVID-19 pandemic. However, banks still can impose their own limits and charge fees if you go over that limit in any given month.
Using a Money Market Account to Save
Money market accounts can be incorporated into a savings plan to help you reach near-term or long-term goals. For example, some of the ways you might use a money market account to save include:
- Building an emergency fund
- Setting aside money to buy a car
- Establishing a down payment to buy a home
- Creating a home repair or home improvement fund if you already own
- Using them as sinking funds, which are savings accounts you create for occasional expenses, such as annual insurance premiums or holiday shopping
- Holding money that you use to pay business taxes or other business expenses if you’re self-employed
Money market accounts can offer easy access and a way to keep money liquid that you may not need right away. Being able to write checks from these accounts also is convenient if you’re saving money for a large expense, such as a down payment on a home, and you don’t want to have to take the extra step of transferring funds to a checking account.
Essentially, a money market savings account is similar to having a checking account that pays interest. While some banks offer interest checking, those accounts are less common than standard checking accounts. If you’re looking for a deposit account that combines the best features of savings accounts and checking accounts to include in your savings plan, a money market account may fit the bill.
Money Markets vs. Savings Accounts vs. CDs
Whether it makes sense for you to use a money market in your savings plan versus another savings option depends on your needs and goals. A regular savings account, for instance, can have many of the same features as a money market savings account. But there can be a few key differences in terms of:
- Access to savings
- Interest rates
- Fees
- Minimum balance requirements
For instance, you may be able to open a high-yield savings account at an online bank with just $1, but that same bank might require a much higher minimum deposit to open a money market deposit account. So, if you don’t have a lot of money to start saving yet, some money markets may be out of reach.
The next consideration is the interest rate and annual percentage yield a money market account might pay compared to a high-yield savings account or a certificate of deposit (CD). This is where it’s important to comparison shop and check out savings options from multiple banks to see who has the best rates. But it’s also important to pay attention to how those rates are paid for money market deposit accounts.
For instance, some banks may advertise a very competitive APY for money markets. But if you read the fine print you may see that that rate only applies over a certain balance threshold, while a lower APY applies to balances below that amount. Or the rate may apply only for an introductory period, such as the first year.
Something else to keep in mind when creating your savings plan is access. Money market accounts are the most accessible compared to savings accounts or CDs because banks can offer debit cards or check-writing abilities with them. And the money you save isn’t bound by a timeline the way a CD account is. With traditional CDs, you agree to keep your money in savings for a set time period. Only when the CD matures are you able to withdraw your savings and the interest earned without a penalty.
Looking at all three savings options can help you narrow down which one is best suited to what you need. And remember that you can open one of each, if that’s what works best for reaching your savings goals.
Money Market Account Pros and Cons
Money market accounts have both advantages and disadvantages, and it’s important to look at both sides when deciding where and how they fit into your savings plan. As you look at different money market options, here are the most significant pros and cons to consider:
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How to Open a Money Market Account
Opening a money market account is similar to opening any other type of deposit account. The first step is choosing which account to open.
This is where some research is required to compare:
- Minimum deposit requirements
- APY and whether rates are tiered by balance
- Minimum balance requirements to earn the APY
- Money market account fees
- Monthly withdrawal limits
- Access to funds via checks, debit card, mobile banking, etc.
- Online and mobile banking features
Money market accounts can be opened online or at a branch, depending on the bank. Some banks also allow you to open them over the phone.
To open an account, you’ll typically need to give the bank your personal information along with the account information for the bank you plan to make your initial deposit from. The new bank may require an initial test deposit to verify your account details.
Once your money market savings account is open, you can start making deposits. If you’re using one as part of your savings plan, consider reviewing your savings goals and progress at least once a quarter to see how you’re doing. Also, check the fees you’re paying and the interest you’re earning to make sure you’re still happy with your money market account.
And, once a year, you may consider checking out other money markets to see if you can find a better rate or lower fees at a different bank.
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