Money Market Accounts: Everything You Need To Know

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Most people are pretty familiar with both checking and savings accounts but do you know what a Money Market Account is? If not, no big deal I’m going to cover exactly what a money market account is and how they work below.

What Is A Money Market Account?

Let’s not make this more difficult than it needs to be, a money market account is a mix between a checking and savings account.

Money market accounts generally offer better interest rates than savings or checking accounts but with these better rates comes higher minimum amounts to open an account and higher balance requirements. Your ability to quickly access funds (using checks, ATM withdrawals, debit card purchases, or EFT’s) from your MMA varies depending on the bank.

Are Money Market Accounts FDIC Insured?

Yes, money market accounts are insured by the FDIC (Federal Deposit Insurance Corporation) up to a limit of $250,000. Meaning if a bank fails for any reason the federal government will reimburse your account up to $250,000 per-depositor, per-bank.

Please note. If your total account balances (money market, savings, checking and CD accounts) at any bank reaches more than $250,000, only the first $250,000 is insured.

MMA Transactions Limits

Just like a savings account, federal regulations prohibit you from making more than 6 transactions in a month. This includes electronic payments, withdrawals, or outgoing transfers. If you exceed more than 6 transactions most banks will charge you a fee.

MMA Minimum Balances

There are many savings accounts that don’t require a minimum balance to open or balance requirements to maintain them.  However, with MMA’s most banks require a minimum monthly balance and can require a chunk of change as your initial deposit.

You can expect an MMA to have an initial deposit as low as $500 or as high as $10,000 depending on the institution.

MMA Interest Rates

Money market accounts typically offer higher interest rates than a traditional savings account. In general, the goal of any money market account is to receive more interest with less risk.

The better your rates the quicker you can build your balance.  Shop around and find the best deals!

Money Market Accounts vs Savings Account vs CD vs Checking Account

How Is a Money Market Account Different From A Money Market Fund?

Don’t confuse a money market fund with a money market account. They sound quite similar but they are very different.

Money Market Accounts are something you can open at most banks and they are FDIC insured. As mentioned before if your bank goes under you are insured for $250,000 making MMA’s very safe.

A Money Market Fund is a mutual fund. A mutual fund invests in low-risk short term debts such as treasury bills and government bonds. Mutual funds are one of the most popular and least stressful ways to invest because of their simplicity. To begin investing in a MMF most people go through a broker.

Here’s are the BIGGEST difference between an MMF vs MMA.  MMF is subject to the ups and downs of the market and it’s NOT FDIC insured. Therefore you’re riding the waves of the market. With a MMA you don’t have to be worried about market fluctuations your balance will stay pretty constant.

MMA recap

  • Typically higher interest rates than your standard checking or savings accounts
  • Many have higher minimums to open an account and they may require you to maintain higher balances
  • According to the Federal Reserve Board (Reserve Requirements for Depository Institutions Regulation D), there is a limit of 6 withdrawals or outgoing transfers per month from savings or money market accounts.
  • You can accrue fees for falling below the required minimum or attempting to withdraw money too many times

When Should You Use A Money Market Account

There are a lot of good reasons to use a money market account. If you’re looking for a secure convenient place to earn interest and let your money grow an MMA might be for you!

A good reason to use an MMA is for your emergency fund money. Using an MMA for your emergency fund allows you to earn interest and easily access your money for any emergencies.

As we all know things happen. Cars break down and hospital visits occur. The best thing you can do to keep yourself afloat is to have an emergency fund. An emergency fund helps you pay bills when things go awry. As a general rule, you should try to save 3-6 months of living expenses for your emergency fund.

Another good reason to have a Money Market Account is if you are trying to save for the future. A good example is saving for something like a down payment on a house 2-5 years down the road.

Here are some reasons to save money in a MMA

  • Saving money for your emergency fund
  • Saving money for a down payment on a house
  • Saving money for a new car down the road
  • Saving for a wedding ring

Who Should Open A Money Market Account

Anyone who already has a checking account but wants to open another account to save money and earn a bit of interest while doing so! MMA’s are great for saving but you need something like a checking account for everyday use (remember with a MMA you are only allowed 6 transactions).

Why You Should Open A MMA

You want an account that has more flexibility than a traditional savings account and earns more interest than your checking. For example with a savings account you don’t have access to your money using a check or debit card. Most people have to transfer money from their savings to checking to access their money.

With an MMA’s you have the convenience of accessing your funds with a check or debit card.

How To Open a MMA

Comparison Shop– A money market account is pretty easy to open. But before you run out and open a money market account do a bit of comparison shopping.

Money markets accounts aren’t the same across all institutions so you’ll want to find the best terms available. This is a great website for doing online comparisons of various banks and credit unions to save you time.

Choose Your Features- There’s a variety of features to choose from when deciding what MMA you should go with. Check writing features, how often you’ll need to withdraw money from your account, etc. Decide how often you’ll be using these features and narrow down your choices

Compare Account Fees– Obviously you want to choose products that charge you the least amount of money possible. Try to avoid large maintenance fees and minimum balance requirements to save you money.

Look At Minimum Deposit And Minimum Balance Requirements– Figure out how much money you actually have for your initial deposit. By narrowing this down you’ll be better equipped to pick MMA’s that are available to you.

Final Thoughts

As you can see a Money Market Account can be a great vehicle to help you save money and accrue a bit of interest. Do you have any questions or suggestions? I’d love to hear your thoughts. Drop a comment below!


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