Are you looking to save more money, in a shorter amount of time? Do you have a short-term financial goal or dream that seems just out of reach? Are you really getting as much out of the money in your accounts as you possibly could? If you’ve been asking yourself any or all of these types of questions, it may be time to open another banking account. Not a second savings or checking account, but a third kind, known as a money market account. Read on. We’ll explain what a money market account is, how these accounts work, and why it might benefit you financially to open one.
What Is a Money Market Account?
A money market account, or MMA, is an interest-bearing account from your financial institution. MMAs have specific features that distinguish them from other types of accounts. The main advantage is that an MMA will yield you more interest than traditional savings or checking accounts.
How Does a Money Market Account Work?
In some ways, an MMA combines the best features of your savings and checking accounts. Like a savings account, you are able to earn interest on your money, though the interest rates for MMAs tend to be higher than traditional savings accounts.
Of course, interest rates can still be variable, meaning that how high they get depends on the market. But all in all, opening one of these accounts should yield you considerable interest.
With MMAs, you are typically able to access your money like you would a checking account. To start, they usually come with check-writing privileges. Some come with their own debit cards. As with a typical debit card, this means you can perform transactions like withdrawals, deposits, and transfers at ATMs. Some MMAs may have a limit to the number of transactions that can be performed each month, so do some research. You should choose a money market account at a financial institution that offers the services you need.
What Is the Difference in Interest Rates Between Savings and Money Market Accounts?
The exact difference between rates offered by MMAs and rates offered by savings accounts will also vary. To give you an idea of the money market rates you can expect, we’ll cite recent figures. As of March 2023, the first quarter of the financial year, the National Credit Union Administration listed national deposit rates at credit unions as 0.16 for savings accounts and 0.53 for money markets.
Who Can Benefit From Opening a Money Market Account?
Often, money market accounts are opened by individuals who want to yield more savings than their savings accounts can offer. Usually, this is to reach a short-term financial goal. Because of the extra interest offered, money market accounts are a great way to raise funds quickly. But they’re usually better used for short-term goals rather than long-term ones. Longer-term goals and purposes, such as saving for retirement, benefit more from using a traditional savings account, where interest rates are likely to remain more stable. Or if you’re thinking that a savings account won’t yield enough, you can look into investment accounts.
Will a Money Market Account Keep My Money Secure?
While MMAs have their differences from savings and checking accounts, one very important feature is the same across all three types. There is reassurance that your account is protected.
Financial institutions are required to provide federal insurance protection for their members’ accounts. Banks are protected by the Federal Deposit Insurance Corporation, or FDIC. Credit unions receive protection by the National Credit Union Administration, or NCUA.
Both the FDIC and the NCUA insure up to $250,000 per individual, or $500,000 for joint accounts, per account ownership category at the same financial institution. That means if you have an MMA and savings and checking accounts at the same credit union, the balances of all the accounts will be added together and you will be insured up to $250,000. Joint, retirement, and trust accounts all fall into different categories and would have separate limits.
How Do I Open a Money Market Account?
Most credit unions will allow you to open an MMA right on their website or mobile app. Depending on your financial institution, you typically need a minimum deposit to open a money market account, and the amount is generally larger than with a traditional checking or savings account.
Some financial institutions require account holders to maintain a minimum balance in their money market accounts, and if you fall below this mandatory amount, you could be charged a fine. Knowing what the requirements are for your account can help you avoid unwanted fees.
Where Should I Open a Money Market Account?
You can open a money market account from your current financial institution. But if you’re considering a change, you can also do research to determine the best credit unions for money market accounts in your area. In addition to offering great rates, you should look for credit unions that have low opening minimum deposit requirements and offer little to no fees.
If money market accounts are a whole new world for you, it’s also in your best interest to work with a credit union that promotes financial education and resources. Having this financial and savings knowledge on your side will further help you accomplish your financial goals. Making good financial decisions will boost your savings just as much as the higher interest rates provided by MMAs.
In northeast Wisconsin, for instance, Capital Credit Union money market accounts come with a number of benefits that set their accounts above the rest. This includes no service fee, a minimum of $2,500 deposit to open the account, and flexibility to make sure the MMA helps you achieve your financial goals while fitting into your current financial lifestyle.
Now that we’ve explained what a money market account is, at the end of the day, the decision of whether or not to open one for yourself depends on your unique financial situation and best interests. Hopefully, the above explanation helps you feel more informed and prepared to make that financial decision.