A money market account (MMA) is the more glamorous older sister of the plain Jane savings account. In other words, an MMA is similar to a savings account, however, interest rates and terms for money market accounts are usually more attractive.
In fact, the minimum deposit and balance for the account are often noticeably higher when compared to a savings account. When the average savings account return is close to 0.05%, and it’s possible to find money market accounts with returns over 1.50%, you’d be better off making the switch.
Best Money Market Accounts:
- Bank 7 high rate online money market: 0.55% APY
- UFB Direct: 1.60% APY
- Capital One 360: 0.50% APY
- Ally Bank Money Market Account: 0.50% APY
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Why Invest in a Money Market Account?
The advantages of investing in a money market account include:
- Interest rates are often higher than a standard savings account.
- If you’re risk-averse, a money market account is a great option for you.
- It’s a great way to generate a little bit of return, especially if the market is unstable.
- You can write a limited number of checks every month.
What a Money Market Account is Not
A money market account is a savings vehicle, not an ATM machine. If you’re one of those individuals who treats your savings account like a checking account, it’s important to realize that savings are actually supposed to be reserved for access later, and that includes money market account funds.
A money market account is also not a money market fund. Money market funds are open-ended mutual funds that invest in short term debt securities, including U.S. Treasury bills and commercial paper. However, unlike money market accounts, money market funds are not insured (by the Federal Deposit Insurance Corporation, or FDIC, for banks, and National Credit Union Administration, or NCUA for credit unions). Unlike money market accounts, money market funds are tied to an investment and are therefore subject to risk.
It’s also important to note that money market accounts are not known for superior liquidity. In other words, since they place restrictions on the number of withdrawals and check writing on any given month, they’re less liquid than checking accounts.
Is a Money Market Account Right for You?
Financial experts say that anywhere from 3 to 6 months of emergency expenses should be covered in case of a job loss, debilitating health occurrence or other catastrophe, and a money market account could be a good vehicle for you to make that happen. Of course, if you have more than the requisite emergency expense money lined up, you might be better off investing the rest in an account that will earn you more.
You’ll also need to be sure that you eyeball the account fees and minimums for the money market account you’re considering, as most financial institutions require a set amount for an initial deposit and also require a certain monthly balance to avoid a service charge. If you know you can’t maintain the monthly minimum, you might want to rethink this type of investment.
Open a Money Market Account
You can open a money market account with a bank or credit union, and interest rates will vary because certain banks and credit unions go out of their way to try to attract customers.
You’ll be able to fill out an application online, or you can call and ask your bank or credit union to mail your application forms and full account details. Check with your bank and credit union to see if there are any perks for you if you open multiple accounts at that particular bank or credit union.
Money Market Account Interest Rates
Money market accounts earn interest because the bank or credit union you put your money into uses your money to loan funds to others, then turns around and pays you interest for the use of that money.
Interest on a money market account is usually compounded daily and paid monthly, and again, rates can vary quite a bit among banks and credit unions. Often, the more money you put into an account, the higher your interest rate will be.
Best Money Market Accounts
Here are several high APY money market accounts Benzinga can recommend:
Bank 7 high rate online money market: 0.55% APY
- $5,000 deposit to open account
- Interest paid monthly on minimum daily balance of $5,000
- Visa debit card (optional)
- Online banking and bill pay
- Mobile banking
- Deposits are unlimited by law; preauthorized transfers or withdrawals are limited to six total per month.
- $29 overdraft item fee
- $29 returned item fee
- $25 stop payment per request
- $7 deposited checks to returned unpaid
UFB Direct: 1.60% APY
- $5,000 minimum to avoid monthly maintenance fees
- Visa debit card available upon request
- Access to limited check writing
- Free mobile deposit
- Access to MyDeposit app that allows you to deposit checks whenever you’d like from your mobile device
- Free FinanceWorks money management tool
- $10 monthly maintenance fee if you dip below $5,000
Capital One 360: 0.50% APY
- $10,000 minimum balance to earn APY
- If your balance is less than $10,000, you’ll earn an APY of 0.50%
- ATM card is available to withdraw $1,000 per day
- No monthly fees
Ally Bank Money Market Account: 0.55% APY
- $25,000 minimum daily balance: 0.50% APY
- $5,000 minimum daily balance: 0.90% APY
- Less than $5,000 minimum daily balance: 0.90%
- Unlimited deposits and ATM withdrawals and up to 6 additional transactions
- Deposit checks remotely with Ally eCheck Deposit
- EMV chip technology
- No monthly maintenance fees
Look into Money Market Accounts
The bottom line is that money market accounts are a great option if you really need to hang on to some money that you’ll need for the future.
Be aware sometimes banks and credit unions use “teaser rates” to lure you, then change the rate after a certain amount of time. Often customers are completely oblivious to when the rate changes, so be sure to do your research and make sure banks and credit unions aren’t trying to simply get you in the door.
Get started with our recommended money market accounts today.