Published in: Banks | Sept. 20, 2019

8 Reasons Money Market Accounts Are a Good Idea

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Money market accounts offer a compromise between savings accounts and certificates of deposit.

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You have many options for stashing money you don't need for daily expenses. Savings accounts offer crazy low interest rates, and CDs tie your money up for too long. The stock and bond markets offer substantial returns on your investment, but they do carry risk. In order to realize large returns or offset short-term losses, you may need to leave your money invested for years. A money market account may provide a compromise.

An MMA is like a combination between a high-yield savings account and a checking account. You can earn higher interest rates, but you still have easy access to your funds. You can open a money market account just as easily as a checking or savings account at your local bank or an online bank. 

Before you choose a money market account, though, read the fine print. Make sure you can meet the minimum opening balance requirements. You must also meet the ongoing balance requirements to get the highest return. 

Keep reading to learn the reasons a money market account may be right for you. 

1. You may earn more interest than traditional bank accounts pay

Money market account interest rates generally exceed standard savings account rates. Interest rates change daily, but when rates are generally high, MMA rates are much higher than savings account interest rates. Historically, MMA rates have been as much as double that of savings accounts. Today, money market accounts pay an average APR of 0.19%, while savings account pay an average APR of 0.09%.

On average, the interest you may earn on an MMA falls somewhere between the interest rates on a long-term CD and a standard savings account. Be sure to shop around, though, as each bank will offer different rates.

2. Money market accounts can be FDIC-insured

Opening a money market account at an FDIC-insured bank or NCUSIF-insured credit union protects your money. If the bank or credit union fails, the FDIC or NCUSIF protects account balances of up to $250,000 per depositor.

You don't get this same guarantee in the stock or bond market. If your investments in stocks or bonds tank, you lose money, and there's no guarantee you'll get it back over time. Money market accounts offer that extra peace-of-mind that many people need.

3. You may be able to write checks

Unlike CDs and savings accounts, some money market accounts offer check-writing privileges. Each financial institution has different rules, though. If you need access to checks, ask each bank about the benefits they offer.

Keep in mind that federal law restricts how many checks you can write per month. At the most, you can write six checks, but some banks set a three-check-per-month limit. The withdrawal limitations extend to electronic and telephone transfers as well. Exceeding the number of allowed transfers could result in hefty penalties and fines. 

4. You can access your funds via ATM

Some financial institutions offer ATM access to your money market account. Unlike electronic, check, and telephone transfers, though, there typically isn't a limit to the number of ATM transactions you can make. To earn the most interest, you should leave your funds untouched, but life happens. Knowing you have access to your funds in a pinch can be reassuring.

Before you choose a bank that offers ATM access, make sure you're aware of the fees charged, as well as the availability of a fee-free network. Paying excessive fees just to access your funds can eat away at the benefits of the higher interest rates earned.

5. You can withdraw funds in person

If you choose a local financial institution for your money market account, you can also make unlimited in-person transactions. While I don't recommend withdrawing funds often, liquidity is a benefit you shouldn't ignore.

You may also create a strong personal relationship with the professionals at your local bank. As the bankers get to know you, they may recommend other beneficial financial products that you may not have known about without the recommendation. With your local banker nearby, you can also swing in during business hours and ask questions and get advice at your leisure.

6. You don't have to bank online

Online banks may offer high interest rates, but they require you to manage your money electronically. If you're uncomfortable with the idea of sending your money to a bank you can't see in person, an MMA can be a good option. Money market accounts at brick-and-mortar banks and online savings accounts are often similar in many ways, including the requirements for opening an account.

Before you open a money market account, be sure to read the minimum balance requirements carefully. Many banks offer tiered interest rates for money market accounts. They save the highest rates for clients with the highest ongoing balances. Since you can open an MMA at any bank, not just the bank that has your checking or savings account, shop around for the best deal.

7. You don't have to tie up your money for long periods

CDs require you to leave your money invested for months or even years to get the highest interest rates. If the idea of tying up your money is unappealing, MMAs can provide comparable rates if you shop around. While you won't match the rate of return on a five-year CD, you'll likely earn higher interest rates than your traditional savings account and short-term CDs offer. In addition, you'll get the benefit of easily accessible funds. 

8. Money market accounts offer a safe place for your emergency funds

Your emergency fund should have three to six months' worth of expenses in it. If you keep those funds in your checking account, it's easy to spend the funds without realizing it. A money market account provides a safe place to stash the funds but still allows you to earn interest. Should you need to tap into your emergency funds, you have several options to withdraw the funds quickly.

Shop around to get the best money market account

As with all bank products, it's important to shop around and find the best deal. Know how much money you have to open the account and how much money you'll keep in the account on a regular basis. This can help you choose the account with requirements you can meet and make the most of this potentially high-yield account.

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