A money market account is a type of savings account that typically requires a higher minimum deposit and daily balance, yet it offers higher interest rates than most standard savings accounts.
Ready to get started saving? Check out our top picks for this year’s top money market accounts.
Top 6 Money Market Accounts
Quontic is a digital bank that stands out for its attractive money market account rates and customer-friendly features. It offers online money market and savings accounts for consumers, similar to other online banks like UFB Direct.
Discover Bank is mostly known for offering credit cards, but it also provides a host of online banking products, including a money market account.
What is a money market account?
A money market account is a savvy way to save, especially if you’ve already accumulated a fair amount of funds to put away.
You also get to retain the convenience and flexibility of a regular savings account by making withdrawals as you need them without the wait time of other savings accounts. You might even be able to write a few checks from your account, depending on the bank.
This makes your funds much more accessible compared to an account like a CD with a predetermined term. There are never any penalties so you can get your money when you need it while still earning above-average yields.
Pros and Cons of Money Market Accounts
Like any financial product, money market accounts have both advantages and disadvantages. Understanding these can help you decide whether a money market account is right for your financial situation and goals.
Pros of Money Market Accounts
- Higher interest rates: Money market accounts often offer higher interest rates compared to traditional savings accounts, especially at online banks and credit unions. This means your money can grow faster.
- Accessibility: Unlike certificates of deposit (CDs), money market accounts typically offer check writing privileges and a debit card, giving you more flexibility and easier access to your funds.
- Insurance protection: Money market accounts at banks and credit unions are insured by the FDIC and NCUA, respectively. This means your deposits are protected up to the maximum allowed by law.
- Combines checking and savings: A money market account can offer the best of both worlds: the higher interest rates of a savings account and the check writing and debit card access of a checking account.
Cons of Money Market Accounts
- Minimum deposit and balance requirements: Many money market accounts require a higher minimum deposit to open and minimum balance to maintain compared to traditional savings accounts. Not meeting these requirements can lead to fees or lower interest rates.
- Withdrawal and transfer limits: Under federal law, money market accounts are limited to six convenient transfers or withdrawals per statement cycle. Exceeding this limit could result in fees or account closure.
- Variable rates: Money market account rates are not fixed and can fluctuate over time. If rates go down, so will your earnings.
- Fees: Some money market accounts charge monthly maintenance fees, which can erode your earnings if not waived. Be sure to understand any potential fees before opening an account.
What to Look for in a Money Market Account
Selecting the right money market account can be pivotal in optimizing your savings strategy. This section will help you identify and understand the key factors that differentiate various money market accounts, empowering you to make an informed decision tailored to your financial needs and goals.
Understanding the APY (Annual Percentage Yield)
One of the primary considerations when choosing a money market account is the annual percentage yield (APY). The APY is a percentage that tells you how much you’ll earn or owe in a year, taking into account the effects of compound interest.
The APY can vary significantly between different banks and credit unions. It’s a key differentiator, as money market accounts with higher APYs will yield more earnings over time. This factor gives them an edge over traditional savings accounts, which typically offer lower interest rates.
Fees and How to Avoid Them
Another significant consideration when selecting a money market account is the presence of fees. Many money market accounts tend to have monthly maintenance fees, which can chip away at your earnings over time.
When comparing accounts, it’s crucial to look for those with no or low monthly service fees. Some financial institutions may also offer ways to waive these fees, such as maintaining a minimum balance or setting up a direct deposit.
Accessibility to Your Money
One of the advantages of a money market account over a traditional savings account is increased access to your funds. Many money market accounts offer check writing privileges and a debit card, which can provide more flexibility in accessing your money.
When choosing a money market account, consider your liquidity needs and whether the account offers the necessary accessibility features.
Minimum Balance Requirements
Some money market accounts have minimum balance requirements. This is the lowest amount you can keep in your account without incurring fees or penalties. Falling below this minimum could result in a monthly fee. Understanding these balance requirements can help you avoid unnecessary charges and manage your money more effectively.
Before you entrust your money to a financial institution, it’s essential to ensure that your funds will be protected. Banks and credit unions in the U.S. offer insurance through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), respectively.
This insurance ensures that even if the financial institution fails, your deposits will be protected up to the maximum allowed by law—$250,000 per depositor, per insured bank, for each account ownership category.
Understanding these key features will help you select the money market account that best fits your financial needs and goals. In the following sections, we’ll delve into the specifics of the top money market accounts of 2023, considering these features and more.
How to Open a Money Market Account
Taking the leap to open a money market account is an important step in strengthening your financial future. Once you’ve identified the best money market account that suits your needs, the process to open your account is typically straightforward, though it may vary slightly among different banks and credit unions.
Here’s a step-by-step guide to assist you in this process:
Step 1: Gather the Necessary Information
When opening any kind of deposit account, including a money market account, you’ll need to provide certain personal information. Typically, this includes:
- Your full legal name
- Date of birth
- Social Security number
- Contact information such as your phone number, email address, and residential address
If you’re not a U.S. citizen, financial institutions will likely ask for additional documentation such as your passport or another form of government-issued identification.
Step 2: Choose Your Bank or Credit Union
If you’ve already chosen your bank or credit union based on the criteria we discussed earlier (APY, fees, minimum balance, etc.), you’re already one step ahead. If not, take the time to compare money market accounts at different financial institutions.
Step 3: Visit the Financial Institution’s Website or Local Branch
Most banks and credit unions enable you to open a money market account online, though some may require you to visit a branch. If you’re opening an account online, navigate to the bank or credit union’s website and look for their account opening section.
Step 4: Complete the Application Process
During the application process, you’ll need to provide the personal information you gathered in Step 1. For online applications, simply input this information into the appropriate fields. If you’re applying at a branch, an account representative will guide you through the process.
Step 5: Make Your Initial Deposit
Once you’ve filled out the application, you’ll likely need to make an initial deposit. The minimum deposit to open an account varies by financial institution, so ensure you’re aware of this amount before proceeding. You can typically fund your account with a direct deposit, transfer funds from another account, or mail a check.
Step 6: Set Up Account Features
Finally, you’ll need to set up any additional features your money market account offers. This may include online banking, mobile check deposits, online bill pay, or setting up direct deposit with your employer.
Step 7: Review and Finalize Your Account
Once everything is filled out, take a moment to review all your information and ensure everything is accurate. After you’ve checked everything, submit your application.
Following these steps will put you on the right path to opening your money market account. Remember, the key to a successful personal finance journey is to make informed decisions, so always ensure you understand the terms and conditions of any account before opening it.
Money Market Account Alternatives
There are various alternatives to money market accounts that you can consider depending on your financial needs and goals. Below are some of the key alternatives:
1. Savings Accounts
A regular savings account is the simplest form of savings for many people. They are often used for short-term savings, emergency funds, and to keep money safe. They typically offer lower interest rates than money market accounts but come with less risk and easier access to your funds.
2. Checking Accounts
For those who desire ease of access to their funds for daily transactions, checking accounts serve as a viable alternative. They typically do not offer interest, but they provide the convenience of frequent withdrawals through check, ATM, or digital transactions.
3. Certificates of Deposit (CDs)
If you are looking for higher returns and don’t mind locking away your funds for a fixed period, certificates of deposit can be a suitable alternative. They often offer higher interest rates than both savings and money market accounts. The trade-off is limited access to your money without incurring a penalty.
4. Investment Accounts
Investment accounts, such as stocks, bonds, mutual funds, and other securities, are higher-risk alternatives to money market accounts that can potentially provide higher returns. However, they are subject to market volatility, and hence, not suitable for everyone.
Money market accounts certainly have more restrictions than your typical savings account, but because they generally come with better interest rates, it can be a great way to save money.
As with any account, it’s essential to make sure you find the best money market account for your needs that banks and credit unions have to offer.
Frequently Asked Questions
Are money market accounts safe?
Yes, money market accounts are generally safe as they are insured by the Federal Deposit Insurance Corporation (FDIC) in banks or the National Credit Union Administration (NCUA) in credit unions. This insurance means your deposits are protected up to the maximum allowed by law, even if the financial institution fails.
Can I lose money in a money market account?
Money market accounts are considered a safe investment, as they are not subject to the volatility of the stock market. Unlike money market mutual funds, which can lose value, the principal in your money market account is protected. The only loss might come in the form of fees if you don’t meet certain conditions, such as maintaining a minimum balance.
How many withdrawals can I make from my money market account?
By federal law, money market accounts are limited to six “convenient” transfers or withdrawals per statement cycle. This includes preauthorized, automatic transfers (including overdraft protection transfers and transfers to service loans at the same institution), and transfers and withdrawals initiated by telephone, fax, or computer, among others. However, ATM withdrawals and withdrawals made in person at a bank are not subject to this limit.
Is the interest rate on a money market account fixed?
Interest rates on money market accounts are variable and can change based on the national Federal Funds Rate. This means the APY on your account could increase or decrease over time.
How often is interest paid on a money market account?
The interest on a money market account is typically compounded daily and paid monthly. However, the compounding frequency and payment frequency can vary between different financial institutions, so it’s important to check the specifics with your bank or credit union.