Published in: Banks | Jan. 7, 2019

When to Open a Money Market Account: Is It Right For You?

By:  Eric Volkman

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A money market account can be a fine instrument for savings, mixed with a bit of spending. You shouldn’t be offhand or casual about timing its opening, though.

Bank teller and customer.

Image source: Getty Images

So you’re thinking about opening a money market account, eh?

Most likely you’re interested because at least one of the numerous benefits of a money market account appeals to you. The benefits include:

Interest rates -- Money market account APYs are nearly always higher than those of checking and savings accounts.

Rate increase potential -- Due to their funding structure, money market accounts are often very quick to raise their rates when the Fed makes a move upwards.

Flexibility -- In contrast to certificates of deposit (CDs), money market accounts are relatively flexible with some scope for spending and transferring funds.

These are yours for signing on the dotted line at the bank of your choice. But before you uncap that pen, let’s explore when particularly is an appropriate time to open a money market account -- following a brief exploration of what you’ll be getting into. If you need a refresher on what a money market account is, read more here.

When should I open a money market account?

Everyone’s financial situation and means are different, so it’s hard to make concrete rules for when you should open a money market account.

We can stick to a few broad principles, though.

  1. Since money market accounts tend to have minimum deposit requirements -- typically in the low-to-mid thousands of dollars, although this can vary -- you’ll need at least a small pile of cash to open one. At the end of the day, it’s a facility meant for discretionary funds.
  2. You’ll also need to more or less maintain that pile of cash as time goes on, since many banks impose minimum ongoing balance requirements. These can come in lieu of, or be additional to, the minimum opening deposit.
  3. You should also have enough money in checking and other bank accounts to function comfortably. As we’ve written, checking accounts are facilities for frequent spending -- basically, they should work as your main spending account; under-funding this could cause serious problems.

CDs, on the other end of the spectrum, are vehicles 100% designed for store-and-wait savings. Even a small premature withdrawal will generate penalties that have the potential to wipe out future gains.

All of these accounts should stay sufficiently funded. If you’ll be under-funding any by opening a money market account (or cracking into one, in the case of CDs or brokerage accounts), it’s probably best to hold off until your financial situation improves.

It’s when these stars align that it’s ideal to open a money market account. To recap, you’ll want to be in a place where you have:

Sufficient discretionary funds -- These monies should be available at least into the foreseeable future, and need to be enough to satisfy minimum opening and ongoing balance requirements (if applicable).

Sustained, secure funding for other accounts -- Bills need to be paid! Don’t put your other financial instruments at risk in order to open a money market account.

Is a money market account right for me?

A money market account is sort of an elevated savings account that blends in several attractive elements of a checking account.

At the end of the day, it’s an instrument for those who have accumulated some degree of savings that probably won’t need to be tapped in the looming future. In a money market account, these funds can earn relatively high interest rates, while still being at a customer’s disposal in case of emergency.

If you want to play this game, though, you need to pay.

Some of those minimum requirements can be relatively hefty. However, you can only earn its top rate with a large sum in the bank.

Happily, there are exceptions -- after all the money market account is a very common and prevalent offering from banks and other financial service companies.

For example credit unions, which, in theory, are operated for the benefit of their members rather than profit, might offer less onerous balance requirements and/or higher APYs. As with any financial instrument, shop around with the money market account and don’t be shy to ask questions.

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