When you decide to put money away into savings, you have a few options. Do you want a standard savings account, or would you like something that may provide more benefits, like a money market account? Deciding what account works best for you must be based on what you are looking for in a savings account – do you want the ability to make debit card purchases from your account, or are you more interested in the interest yield that it has?
Learn more about your savings account options and whether a money market account is right for you, below.
What is a Money Market Savings Account?
A money market account is a savings account that is interest bearing. This means that when you put a certain amount of money into the account and keep it in there for a period, you will start to earn interest from your funds. The exact interest rate and how often that interest is compounded will vary depending on the specific account and the institution that you choose.
Money market accounts typically offer a higher interest rate than standard savings accounts, and many of them will also provide you with the ability to write checks and make debit card purchases from your account as well. Therefore, a money market account shares similarity with both a checking account and regular savings account. However, you should keep in mind that in order to open up a money market account, you will generally need to deposit a large sum of money initially, and some banks require that you have a certain balance in your account at all times or else you will be charged fees.
Related Article: Debt Help
Benefits of a Money Market Savings Account
There are a few distinct benefits included if you opt to open a money market savings account. The biggest benefits include that the account offers a high interest rate, your money is protected by the FDIC or NCUA, and you are also able to write a limited number of checks or use a debit card when you need access to your money.
- Higher interest rate. A money market account can provide customers with a higher interest rate than most typical savings accounts can offer for a few different reasons. One reason for the higher than average interest rate, is the bank is able to invest into a variety of options that typical accounts do not have access to. In addition, because the money market account requires a high balance and has a restricted number of withdrawals allowed from the account, you can benefit from a higher interest rate.
- Secure money. Another big benefit to opening a money market account is that your funds are protected by either the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Administration) for up to $250,000. This makes your money much more secure than if it was part of a money market fund, where you may lose money if the market falls.
- Limited checking account abilities. Most regular savings accounts do not provide their customers with the ability to withdrawal funds through the writing of checks or use a debit card to make some purchases. However, certain money market accounts do offer those abilities. If you want to have the ability to access your funds through checks and debit cards up to a total of six times per month, a money market account may be a good option for you.
Disadvantages of a Money Market Savings Account
Although there are many advantages to having a money market account for your savings, there are certain requirements that you need to keep in mind before getting an account set up. These include:
- Higher minimum deposit. One requirement for opening a money market account that is typical for most banks is that you must provide an initial deposit into your account of a certain amount. On average, you will be required to provide a much bigger deposit than you are usually required to for a savings account. However, the exact amount you must deposit will vary greatly depending on the bank that you choose. For example, you may pay anywhere between $100 to $1,000, or potentially more!
- Higher minimum balance. In addition to potentially needing to provide a certain minimum deposit to open your account, most money market account banks require that you always have a certain amount of money in your account at all times in order to avoid being charged fees. Similar to the minimum deposit, the exact amount of money that you will need in your account will vary depending on the institution you choose to go with for your account.
- Limited checking account abilities. Although the ability to withdrawal money and use a debit card to access funds through certain money market accounts can certainly be considered an advantage, it is important to note that these abilities are very limited. Therefore, if you wish to have more easy access to your money, it may be in your best interest to consider an interest-bearing checking account instead.
Other Saving Account Options
In addition to money market accounts, you also have options such as a standard saving account, an interest-building checking account or even a certificate of deposit (CD). All of these options have a variety of different pros and cons that are associated with them. If you compare a money market savings account to any of the other options, you will discover that there are both similarities and differences in how they operate and in what types of benefits you receive from each.
It is crucial that you do your research before opening up a money market account or any other type of savings account so that you can make an educated decision about what option works best for your financial situation and needs.
Related Article: Best Budgeting Practices for Retirement