Money market accounts are somewhat similar to checking and savings accounts. However, there are often higher balance requirements and minimum deposits that are necessary to open a money market account. Also, interest rates are generally higher on a money market account over a savings account, and you may have debit card access to make purchases through the account, just like you do with a checking.
A money market account isn't necessarily for everyone, so it's essential to understand how they work. Here are some reasons why a money market account may be the right account for you.
The Pros of a Money Market Account
Higher interest-earning – The interest rates are typically higher on money market accounts, over traditional checking or savings accounts.
Accounts are insured – Depending on whether your money market is at a bank or credit union, your money is backed by the FDIC or NCUA. This backing will insure up to $250,000 per depositor at your financial institution. If the bank or credit union fails, the money will be paid back to you up to the insured amount.
Access to checks – Money market accounts allow you to write a certain amount of checks. You're limited to six withdrawals or transfers a month, which includes debit purchases, bill pay, and transferring money between accounts if not conducted in person.
What to Know About Money Markets
A minimum balance must be maintained; to open a money market, generally, you must make a large initial deposit. Also, the balance of the account must be maintained at a certain level at all times. If the balance falls below that amount, you may have to pay a fee or miss out on the higher interest. Also, if you go beyond the six transaction limits in a month, you may pay a fee.
When Does it Make Sense to Open a Money Market Account
Since everyone's financial situation is different, the reasons to open a money market account will vary. Some broad guidelines may point you in the direction of opening a money market account.
Consider how much money you keep in your checking and other accounts. Do you have enough in these accounts that you’re not using, and could be earning higher interest? It might make more sense to deposit that money into a money market account. Keep in mind that since there's a transaction limit, you’ll need to keep transfer and withdrawal activity on a money market account to a minimum.
The minimum deposit amount necessary to open a money market should be an amount that you can keep in one place for an extended amount of time. Also, there is typically an ongoing balance requirement. For instance, a money market account may require that you open an account with $1,000 and maintain that balance month to month.
If you are considering a CD but are worried about locking your money up for several months or years, a money market might be a good alternative. Withdrawing your money early on a CD will require you to pay an early withdrawal penalty fee. Alternatively, if you're comfortable with securing your money in a CD for some time, you will want to review the interest rate earnings between the two.
A money market account might be a good option for when you need money in the near future and still want to earn a small return. Emergency funds, tuition costs, and budgeting for tax payments are uses where money market accounts could be helpful. It's best to use these types of accounts for significant, infrequent expenses.
Finding a Money Market Account
When shopping around for a money market account, you should compare the minimum opening deposit, monthly minimums, interest rates, and the charges/fees imposed. Your current financial institution might offer a money market account, so start there. You'll want to look at least three different money market accounts to find the best deal for you. Once you've chosen a money market account, review it once a year. An account that offers the highest money market rate at the start, doesn't necessarily mean that will be the case in the future.
Give NASB a call at 816-508-2427 if you have more questions about money market accounts or click here for more information.