Should You Open a Money Market Account With Your Stimulus Check?

If you're trying to decide what to do with your stimulus check, why not put it to work for you?

Thanks to the Coronavirus Aid and Economic Security (CARES) Act, 130 million Americans have received a stimulus check, while an estimated 10 million continue to await theirs. If you are wondering what to do with your check, the flexible nature of a money market account (MMA) may make it precisely what you're looking for.

What is a money market account?

Take the best features of a savings account, blend them with the best features of a checking account, and you will end up with a money market account. An MMA combines some of the flexibility of a checking account with a decent interest rate.

You set up a money market account in much the same way you'd set up any checking account. You can have your paycheck automatically deposited into it, write checks against it, and manage it online. 

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The downside is that some money market accounts require you to pay a high minimum deposit. And normally, MMAs allow for only six "convenient" transactions per month, with anything beyond that number incurring a fee. The Federal Reserve has suspended this rule indefinitely during the COVID-19 pandemic. It's now up to individual banks to set their own rules.

MMAs: Making the most of your stimulus check

Some of the highest-paying MMAs today offer APYs of up to 1.51%, which is about the same as the best savings accounts. MMAs offer more flexibility than savings accounts and more stability than a stock market investment. The interest rates may be lower than usual right now, but what you lose in interest, you gain in security. Look for an MMA that offers a low or no-minimum initial deposit and does not require you to maintain a high balance. 

If you are wondering where to put your stimulus check, MMAs have a lot to offer, including:

• Interest: Unlike a checking account, the money in your MMA will earn some interest, even if the rates are lower than you might hope.
• Access to funds: There are things you can do with an MMA that a savings account does not allow, like writing checks and using a debit card to make payments. This is particularly appealing now that the six-transaction limit has been temporarily lifted. Make sure you find out what fees your bank may charge and what withdrawal restrictions it may apply before opening an account.
• Security: You go into most investments knowing that you can lose your money, but your funds are always safe in an MMA. As long as you do business with a financial institution insured by the FDIC or NCUA (if you're not sure, ask), each of your accounts is insured for up to $250,00, per account, per depositor.
• A happy middle: MMAs offer more flexibility than savings accounts and more stability than a stock market investment. The interest rates may be lower than usual right now, but what you lose in interest, you gain in security.

Questions to ask yourself

If you've already received a stimulus check, or expect to receive one soon, it's good to figure out how it can benefit you most. Here are questions you will want to ask yourself before opening an MMA:

• Do you have enough money to pay for the basics, like housing and food? If not, you may be better off putting the extra money straight into your checking account where you can use it to pay your regular bills.
• Do you have enough cash saved in an emergency fund to cover your family for three to six months or more? An MMA could be the perfect place to stash your emergency cash. 
• Do you have high-interest debt draining your checking account? If so, your best bet is to squash that debt at the first possible opportunity, and your stimulus check can help.
• Are you confident that you won't need to touch that stimulus money in the near future? If so, you might want to invest your stimulus check in a short-term CD or even invest it in stocks and shares.

There's a lot to like about MMAs, not the least the way an MMA allows you to access your money easily and without penalty. If the coronavirus crisis has taught us anything, it's that flexibility and security are a valuable combination.