Many people look to traditional savings accounts and Certificates of Deposits as a way to set some money aside and gain interest. However, money market accounts offer benefits of both CD’s and saving accounts. If you’re looking for a great place to park your money, money market accounts may be for you. Check out great MMA rates below.
Money Markets & Money Market Rates
Advantages of Money Market Accounts
One of the most obvious advantages of choosing a money market account over savings accounts is that they generally yield more interest. There are plenty of other benefits to money markets as well. Some of these include:
- Liquidity: Most banks offer you an ATM card and checkbook for your money market account making funds easily accessible. With CD’s you have to wait until maturity before your money is available to you, which is one reason people opt for money markets over CD’s. If you’re in between investments and need somewhere to keep your cash, money markets allow you to withdraw funds when your next opportunity arises. It’s important to remember that most banks do have limits on the number of transactions you can have on your account, so don’t mistake it with a checking account that earns interest.
- Interest Rates: The reason people open savings accounts of any kind is to hopefully gain some interest. Money markets offer higher rates than regular savings accounts, so your money isn’t just sitting wasting away. The interest is accrued daily and dividends are paid monthly.
- FDIC Insured: Money Market Accounts are eligible for FDIC insurance, so you will be covered for up to $250,000. So even if your bank fails, your money is protected.
Disadvantages of Money Market Accounts
Money Market Accounts are not without fault. Just as checking accounts, CD’s, and savings accounts have flaws, so do money market accounts. Some of these disadvantages include:
- Minimum Deposits: Banks will require you to open your account with a minimum balance and maintain a certain balance for the duration of the account. Since the goal of opening these accounts is to earn interest, you should be striving to maintain a decent balance already, so the minimums shouldn’t be a deal breaker.
- Transaction Limits: While one of the pros to these accounts is the ability to withdraw funds and write checks through them, there are limits to what you can do. The Federal Reserve limits the number of transfers and withdrawals you can have each month to just 6.
- Opportunity Cost: Money Markets are a pretty safe bet for your money but the interest they yield isn’t as much as you might find investing in the stock market or other investment opportunities. If you’re looking for big gains from interest, this may not be your top choice. But remember, the potential payout of other investments comes with higher risks.
Money Market Rates
Over the past few years, there has been a significant decrease in the interest rates for money markets so shopping around for the best rate is a necessity. The easiest way to find the best money market rates is to simply ask. Check with your bank or credit union to find out their rates. Rates will vary based on the amount you have in your account and how long you have your money in the account among other things. Rates are also influence by how much banks feel they can make off of loaning the money in your money market account. Since banks aren’t loaning out money as much as they used to, you’ll notice that rates are lower than they were back in 2008. Most banks float around 1% Annual Percentage Yield.
Money Market Accounts vs. Money Market Funds
Misinformation can be very detrimental to people thinking of opening a money market account. One of the most common mistakes is confusing money market accounts with money market funds. Money market funds are a type of mutual funds that invest in short term (less than 13 months) investments such as CD’s, corporate paper, or U.S. Treasury issues. Money Market Accounts are a form of saving accounts that will earn you more interest than a regular savings account with the ability to have more control over when you can have access to your money.
Money Market Accounts are a great combination of checking accounts, traditional savings accounts, and CD’s. Go to your bank and ask about their CD rates, fees, and account minimums to determine if a money market account will work for your needs.