What Is a Money Market Account?

Jul 10, 2019

  • Banking
  • NASB
  • Money Market Account
  • Checking Accounts

If you are currently looking at different savings account options, one type you may want to consider is a money market account. Money market accounts (MMDA’s) typically offer higher interest rates than a traditional savings account, however, the account minimums are also much higher to open and maintain. These types of savings are also insured for up to $250,000. The Federal Deposit Insurance Corporation insures banks, and the National Credit Union Administration protects credit unions.

Be sure when you’re shopping to compare interest rates, account minimums, and potential fees, that you also look at additional features. Some financial institutions will provide checks to write from the account or a debit card to access funds.

Federal government regulations allow up to six withdrawals and/or transfers per month. A money market account that allows check-writing will also limit transactions to six checks per month. If you go over the six-transaction limit, you may incur a fee.

How They Are Different From a Savings Account

Money market accounts generally offer the advantage of earning more interest. The higher account balance is the trade-off for the higher interest rate. These types of accounts are good places to store your money separate from your other accounts, especially for tucking away an emergency fund. Savings accounts do not offer check-writing or debit card access that money market accounts can. MMDA’s are similar to savings accounts in that both must abide by the six transactions per month limit.

How They Are Different From a Certificate of Deposit

Another type of savings account option is the certificate of deposit. Also known as CDs, they generally offer the highest interest rates of the various savings products. Instead of keeping a minimum amount, a CD requires that the financial institution hold a certain amount of money for a set period of time. This is called the term, with time periods anywhere from a few months, up to five years. If you withdraw money early from a CD, you will pay a penalty fee or lose a percentage of your earned interest. Money market accounts offer more liquidity than a CD, so you have the option to access your money more often.

Other Key Differences of a Money Market Account

Money market accounts are sometimes confused with money market funds, which are investment accounts. If the market falls, a money market fund could lose its value. There is no protection provided by the FDIC or NCUA for money market funds.

While money market accounts have similarities with checking accounts, they aren’t meant to be used the same way. The six-transfer limit can add up in a month on a money market account. It only takes a couple of online transfers and swipes of the debit card to be over the limit. If you want more accessibility to your account, look for an interest-bearing checking. Checking accounts may offer interest-earning capability without limiting your transactions.

How to Choose a Money Market Account

Banks and credit unions usually offer money market accounts as one of their products. However, they aren’t all the same. First, look at the savings rate offered by various financial institutions. You will likely see a variety of interest rates with different financial institutions.

Some financial institutions may offer a special promotion on new money market account openings. This promotion is often in the form of a one-time cash bonus. Your return for that first year could be higher on an account that offers such a cash bonus.

Be sure to read the fine print and look at the types of fees that may be charged with each account. When you are saving money, the last thing you want to do is pay fees that take away from your earning capability. If there’s a fee for going below a minimum monthly balance, be sure that you can maintain the required balance.

NASB has money market accounts that you can open to reach your savings goal. Give us a call at 855-338-0915 to learn more.