If you want to earn a higher APY or Annual Percentage Yield, there is nothing better than opening a money market account. Moreover, you can even save more than usual by adding an MMA. Money Market Accounts are now an excellent option for people trying to earn higher APY and save a lot. Moreover, MMAs have many exciting features as well. Therefore, in today’s article, we will talk about what is a money market account. Also, we have talked in detail about everything related to MMA.
Moreover, to better understand a Money Market Account, we have also compared a money market account vs. a savings account. Hence, let’s get going.
Money Market Account Definition
A money market account is a kind of savings account available at both credit unions and banks. The money market account’s balance requirements and the minimum deposit is high. Earlier, money market accounts offered a higher rate of interest. But, currently, they are offering the same quality of interest.
MMAs come with debit cards and checks, which sets them apart from traditional certificates of deposits and savings accounts. The MMA’s check-writing capability a degree of liquidity and flexibility, generally not found in savings accounts. MMAs allow you to withdraw and transfer six times per statement cycle. But, ATM withdrawals are somewhat limited.
There is no maturity term associated with a money market account. But, the bank will use your money is different. Credit unions and banks can use your MMA’s deposited money for low-risk investments such as Treasury notes, certificates of deposits, and government-backed bonds. The deposited money on savings accounts is generally used for loans.
The FDIC or the Federal Deposit Insurance Corp. insures up to $250,000 deposited money in money market accounts. The NCUSIF or the National Credit Union Share Insurance Fund provides all federally insured credit unions members with $250,000 covering for single ownership accounts at NCUA or National Credit Union Administration credit union. Hence, you won’t be losing your money even if the financial institution goes out of business ideas.
Money market account and compounding interest
Now that you have understood the meaning of a money market account, it’s time to understand the compounding interest. So, the interest rate determines how much income and interest your money market account will earn.
The more money you have in your MMA and the higher the interest rate you are earning, the more deposits you will earn in your MMA. Moreover, whenever the Federal Reserve increases or decreases the federal fund rates, it directly affects your money market account yields.
So, when the Feds increase the federal fund rates, people with high-yielding accounts receive higher APYs. Therefore, if you have a high-yielding account, you will be positively affected by the increase in federal fund rates. From the year 2015 to the year 2018, the Feds had increased rates nine times. Hence, this yielded people with high-yielding accounts a higher APY.
But, since 2019, the Federal Reserve has started lowering federal fund rates. Due to the COVID-19 pandemic, the Central Bank had made two emergency and significant percentage cuts to bolster and try the economy. So, this had sent the federal fund rates down to 0. Therefore, these immediate rate cuts have instigated banks and credit unions to lower APYs on money market accounts and savings accounts.
Compounding Interest Calculator
When are interests credited?
Money market accounts are credited with interest every month. The APY includes the results of compounding on that year. Hence, when you try comparing the APYs, you can estimate which account will help your money grow. You can always use an apples-to-apples approach to determine the different MMAs’ interest. So, to determine the earning on your MMA, simply use your compound interest calculator.
MMAs credit interests typically every month. Therefore, you will be getting your interests on the same date every month.
Money Market Account Interest Rates
Currently, the average money market interest rate is 0.09%. Although, a lot of banks are offering seven times more interest rates. Hence, this makes it much more essential to look for the best deal while searching for a money market account. Moreover, it is vital to note that financial institutions can change their interest rates at any time, depending on the market.
Are money market account rates fixed?
Most of the money market account rates are variable and not fixed. Hence, as per market conditions, the interest rates and APYs you will receive can rise or fall. So, the one exception related to the money market is a fixed APY. While promotional periods, the fixed yields are giving your certain APYs for a specified period. If you fail to follow specific rules, then you might even lose the fixed yield. An introductory rate also requires new money deposits that must come from outside the financial institutions.
An introductory rate is a great deal if it does not increase or decrease during the promotional period. Moreover, you must check the ongoing APY’s competitiveness to check if your yield is still competitive after the introductory period ends. But, always remember, this is not a guarantee as APYs are quite variable.
Who should get a money market account?
So, anyone looking to store their big chunk of money and earning some interest must go for a money market account. But, money market accounts are beneficial in certain conditions only. Those are:
- Emergency savings fund set up.
- You must be saving for a goal such as your dream vacation or buying a home.
- To grow your savings in a high-yield account that will offer you the opportunity to write occasional checks.
- If you have an MMA, you will be earning higher yields than you are currently earning in your checking account or savings account.
When should you consider opening a money market account?
You can consider opening a money market account under the following conditions:
- You want an account that offers you safety, a higher interest rate, and liquidity than traditional checking accounts and savings accounts.
- Also, you want to use your debit card up to six times a month. Moreover, if you also want to write checks, you might consider opening an MMA.
- If you are in a bind, then opening an MMA will give you access to immediate funds.
- Next, you want a great spot to keep your emergency funds secured.
- Lastly, if you do not want to lock up your fund or money in a CD for a specified time period, you must get an MMA. Also, MMAs give you tremendous interest rates and are also backed by FDIC and NCUA.
How to choose a money market account?
If you have already decided to open a money market account, you must look for no monthly fees and have high-interest rates. Moreover, it must have a reasonable minimum balance. Individual banks and financial institutions do not have an appropriate minimum balance. Some have relatively high which discourage people not to consider an MMA. Individual institutions need at least $10,000 or even more to earn the best rates. Money market accounts pay the best rates and offer great perks such as ATM fee reimbursements and check-writing.
Other accounts vs. Money market accounts
Money market accounts have certain features that do overlap with other accounts’ features. But, there are still notable and essential differences. Look at the table below to check the differences.
How are Interest Rates?
When should you open this account?
|Money Market Account||The interest rates are quite competitive to that of savings bank account rates.|
|Savings Account||The interest rates are also in competition with the money market accounts rates.|
|CDs or Certificates of Deposits||Certificates of Deposits have the highest interest rates compared to other bank accounts.|
We have talked about compared money market account vs. savings account differences in detail below.
Other crucial money market accounts differences include:
- You have to note that MMAs are not market funds. Market funds are investments that lose value if the market falls. Moreover, MMAs are NCUA and FDIC-backed up to $250,000 per depositor.
- MMAs are not checking accounts. Certain MMAs have a debit card and check-writing features. With regular savings accounts, the transfer and withdrawals are limited to six numbers per month. If you want unlimited checking writings and frequent withdrawals, you must open a checking account.
Which are the best money market accounts?
Below we have listed the best money market accounts along with bank details. Hence, if you are thinking of opening an MMA, then do check out the list.
1. BrioDirect: Up to 0.65% APY
This has the highest rate. Moreover, for top APYs, you will need a $25,000 minimum balance. This is undoubtedly the best APY for people with a minimum of $25,000.
BrioDirect provides a competitive yield of $25,000 or more balances. Also, it just requires $100 to open a money market account.
Moreover, you do not have to pay monthly fees. Also, the MMA at BrioDirect does not have any wire-in fees.
If you create an account with a balance lower than $25,000, you will get only 0.25% APY. If you have an account with more than a $25,000 balance, you will surely get higher yields. But, the account, unfortunately, does not have check-writing features. The paper statement fee is $5. But, you can always avoid it by opting for electronic statements. Hence, there are many privileges with BrioDirect’s money market accounts.
2. Navy Federal Credit Union: 0.60% APY
This is great for the jumbo MM savings account. Navy Federal Credit Union comes with the second-highest rate. For top APYs, you will need a $250,000 minimum balance. Moreover, it is best for military-affiliated people.
This financial institution has been in the market since 1933. Navy Federal has more than 9 million members. The eligible members of this financial institution are Air Force, Coast Guard, Army, National Guard, the U.S. Marines, and Space Force. This includes active members, retirees, and veterans as well. The military members’ immediate kin can also join the Navy Federal Credit Union.
The Navy Federal Credit Union’s jumbo money market savings account keeps increasing its yield until it reaches $250,000 and higher. To earn the top APY, you have to put at least $250,000. Moreover, you have also to note that not all members are going to meet the membership requirements. Also, you will not earn interest in balance on a money market savings account under $2,500.
3. Ally Bank- 0.50% APY
The most notable factor of this financial institution is you need to have $0 for APY. It is best for people looking for a widely spread ATM network.
As per Ally Banks 2019’s annual reports, it has 2.2 million customers. Launched in 2009, Ally Bank has grown widely. This bank allows you both check-writing and debit card privileges. The customer service is always available, and you can get help 24X7.
You have to note that you will be charged a $10 transaction fee if you surpass six transactions. Moreover, for overdraft paid or returned items, you will be charged a $25 fee.
4. Synchrony Bank- 0.50% APY
Just like Ally bank, it has $0 for APY. It has excellent for IRA and regular money market accounts. Synchrony Bank offers savings accounts, money market accounts, and CDs. The bank accounts have check-writing privileges. If you want to enjoy the check-writing benefits, you have to ask the banks for checks once you have deposited the money. Also, you will get an ATM card as well. You can also even receive a $5 per statement refund of ATM fees charged by domestic ATM providers. ATM fee refunds are unlimited for people enjoying Synchrony’s Diamond status reward.
Moreover, note that ATM fees outside the United States of America are not eligible for refunds.
5. CIT Bank: 0.50% APY
To open an account, you need a minimum $100 minimum deposit. It has excellent saving options variety. This is CIT’s national direct bank. Moreover, apart from money market accounts, CIT bank also offers two savings accounts. In November 2019, the bank also launched an e-Checking account.
Apart from liquid accounts, CIT also offers CDs eight terms, jumbo CDs four terms, and no-penalty 11-month CD. It has the best competitive APY. And, it just requires a $100 minimum balance for opening an account. Moreover, CIT bank’s money market accounts do not have service charges. Hence, your interest earnings will also not take a hit. Unlike other online banks, CIT offers several types of bank accounts.
At CIT’s money market account, you have a $10 transaction fee. This is capped every month at $50. Moreover, it also has $25 overdraft fees and a $30 stop payment fee.
6. First Internet Bank: 0.50% APY
First Internet Bank lets you open an account with a $100 minimum deposit. This bank is great for ATM surcharge rebates monthly. Moreover, this bank also allows savers a competitive APY. Also, it is an excellent option if you tend to use ATM occasionally.
For ATM surcharge rebates, this bank provides you $10. Hence, this limits your stress of in-network ATM finding. You have to make sure that you do not even mistakenly surpass the $10 monthly limit.
The most important thing to note is you have to maintain the average daily $4000 limit to avoid $5 monthly fees. Hence, make sure you always have a minimum daily balance amount.
If you are starting to save, you might consider other financial institutions with lower minimum balance amounts.
7. TIAA Bank: An intro APY 0.45%
For opening an account at TIAA Bank, you just need $500. This bank is great for assured competitive intro rate. TIAA bank provides investing lending and banking options to its customers. The deposit products include high-yield MMA, savings account, checking, and CDs. Moreover, it also offers online tools and mobile banking.
The “Yield Pledge” is undoubtedly its best and biggest perk. This assures that the yield pledge MMA rate will always be in the top 5% and competitive. The MMA is IRA-eligible, allows mobile check deposits and no monthly fee. So, if you keep $5000 at least in your account, TIAA Bank will reimburse ATM fees charged by other banks. Regardless of your balance amount, the bank will reimburse $15 ATM fees charged by non-TIAA bank ATMs.
8. Salie Mae Bank- 0.45% APY
For opening an account, you do need any amount. This bank is great for checks first orders at the opening. Salie Mae Bank is mostly associated with student loans, but it does offer a wide range of savings products. The bank offers a high-yield money market, savings, and CDs. Moreover, it also gives you check-writing privileges.
The MMA account Salie Mae does not require any amount, but you have to fund it within 40 days. If you do not fund it, then it will be closed then. The bank has the right to close any account that does not have a $100 balance and other qualifying activities for the past twelve months.
Moreover, order checks as soon as you open an account. If you do not order immediately, then you will be charged $5 for 10-day standard delivery. Or, $15 for 2-3 expected business days delivery.
9. Discover Bank: up to 0.40% APY
Discover banks need at least $100,000 for APY. But, it is great for rewarding jumbo balances. Moreover, Discover Bank also comes with a savings account, money market, CDs both regular and IRA for 12-terms, and a checking account. The jumbo balances also get higher yields. $100,000 balance earns even more high rates.
So, to open an account, you have to deposit $2,500. Moreover, also note that you won’t be charged any extra fees for going below $2,500.
The APY on Discover Bank’s money market account is very attractive. But, remember, this is an introductory APY. But, a year hence, your Annual Percentage Yield can fall as well. Therefore, maintain a good balance amount in your money market account.
Hence, these were some of the top money market account banks. You can choose any one of them to open your MMA.
How safe is a money market account?
Money market accounts are completely safe and secured if they are FDIC-insured banks. They can be federally insured credit unions as well. FDIC deposit insurance covers up to $250,000 per depositor at FDIC-insured banks. Moreover, an NCUA account is similarly insured as that of FDIC. Hence, your money is entirely safe in a money market account.
If you want to check and make sure if a bank is FDIC-insured, then use FDIC’s BankFind tool. The tool will tell you whether or not the bank you are rooting for is FIDC-insured. Moreover, the tool will also help you to know whether multiple banks use the same FDIC certificate.
So, if the credit or the bank fails, then NCUA or FDIC will make sure that your money stays safe. Therefore, when you open a money market account, you can stay rest assured that your money will be safe. FDIC and NCUA, with their quality and essential policies and terms, keep your money safe.
Can you lose your money in an MMA?
Your account is entirely safe and secured by the full credit and faith of the U.S. government. The bank should be FDIC-insured and must follow FDIC guidelines. Moreover, if your account is in an NCUA credit union, it must have NCUSIF to secure and insure accounts. But, if you have an amount balance more than the FDIC and NCUSIF insures, then you can lose money if your financial institution fails. Both NCUA and FDIC offer you, estimators, helping you estimate whether your credit union or bank balances may be covered.
Hence, you must always double-check with the NCUA and FDIC, and your financial institution to confirm the insurance coverage. Moreover, you can lose your money in a money market account if you do not report an unauthorized transaction timely. You have a 60-day window to inform your bank about any suspicious transaction from the date your statement was sent. Hence, check your statement thoroughly to look for any unauthorized transaction. If you find any, then inform your credit union and bank at the earliest. The earlier you report, the most likely it that your money will be saved and secured.
Pros and Cons of Money Market Accounts
Finally, we will discuss the pros and cons of money market accounts. People often wonder whether or not a money market account is worth it. So, let’s check out the pros and cons and determine its worthiness.
- You can access your funds even more efficiently than your traditional savings accounts. You will use checks and debit cards to access your fund. Hence, this is very helpful in an emergency condition.
- When you get a money market account, you will also receive higher rates than checking accounts offer. Hence, you are at a greater advantage.
- As a money market account is FDIC-insured, you will have a safe place to store your large chunk of money. As long as your balance amount is within FDIC’s insured amount, your money is safe with FDIC even if your bank fails.
- When you open a money market account, you make yourself prone to spending a lot of money. Hence, fund spending is much more frequent with checks and debit cards.
- Moreover, certain money market accounts need high minimum balances to avoid fees and to open as well. Therefore, look for ones that have very low or no minimum balances to open an account.
- In many cases, your traditional savings account pays interests similar to that of money market accounts.
If you find that your financial institution is paying the same interest rate on its traditional savings accounts and money market accounts, you must go for a savings account. As both accounts are insured, you are more likely to avoid higher minimum balances. But, if you find that money market accounts pay higher rates and you can also afford the minimum balance, you must open a money market account. Money market accounts are great for storing large chunks of money wholly safe and secured. All thanks to FDIC and NCUA insurances.
Money market account vs. Savings account
Above, we had talked about the money market account vs. savings account is short. In this section, we will dig in a little deeper and explore the differences even more. Hence, let’s start by knowing a bit of savings account, and then we will move on to differentiating both types of accounts.
What is a savings account?
A savings account is a basic account that stores your extra funds and money. So, when you open a savings account, you deposit some money into the account. You can add as well as withdraw money as per your needs and requirements. But, remember that you won’t be getting any chequebooks to write checks to withdraw money. Instead, you have to rely on in-person withdrawals at your bank or online transfers. Moreover, you can also access your money with a debit card if you have linked your account to a debit card. Hence, there are minimal ways to access your money in a money market account.
On each statement period, your bank will limit the number of withdrawals you can make. Therefore, if you step out of that amount, then you will be charged some fees. Also, it depends on whether your account is designed for frequent transactions or long-term storage.
Also, as you are letting a bank hold your money, the bank will pay you some interest in exchange for that. Hence, the bank will make interest payments at each statement periods to help your balance grow.
Note that individual banks have minimum balance requirements and even charge fees for the savings accounts. Hence, keep an eye on such fees as this can even affect your savings accounts balance and decrease it.
Money market account vs. savings account
We had already talked about a money market account in the introduction and talked about the savings account above. Now, what sets apart both these accounts? Let’s know about it.
The primary differences between both these accounts are fee structure and flexibility. Unlike money market accounts, a savings account does not come with chequebooks and debit cards. Money market accounts are exclusively designed to let the account holders use and spend their funds stored in the account. Savings account are not that flexible. Hence, you have to take some more steps to spend the money stored in your account.
Another difference is, savings accounts are comparatively more comfortable and cheaper to open. Many savings accounts have either no fees or significantly less opening amount. Hence, this makes it easier for people who are just starting to save their money and want an account. Moreover, savings account also have non-existing and easy-to-avoid fees as well. Therefore, you will be hardly bothered by the fees they charge on various occasions.
Moreover, money market accounts have quite a high minimum balance required while opening an amount. Also, they charge specific monthly fees. Again, while opening, they also have higher minimum balance requirements while the account is active. Hence, money market accounts are popular among people with larger balance amounts. And even among people who want the flexibility to spend their money.
While a savings account is popular among small savers, money market accounts are popular among people who have large chunks of money and want the flexibility to save their money. Moreover, money market accounts are also NCUA and FDIC-insured. Hence, this attracts a lot of customers as well. I hope this article helped you understand a money market account and the fundamental differences between a money market account vs. savings account.