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Do you typically maintain a high account balance in your savings or checking account? If so, you don't have to limit yourself to just savings or checking accounts. You have options - one includes, money market account (MMA).
Of course, the immediate questions that come to mind are:
- What's a money market account?
- How does a money market account work?
- Are money market accounts safe?
- Are there fees with money market accounts?
- And how does money market accounts compare to other types of savings products?
In this blog post, we will answer all of those questions and why you might want to consider getting one.
here's a quick look at what we'll cover
what is a money market account?
A money market account, or MMA, is a type of savings account that's interest-bearing. This means interest is paid to your account. A MMA combines the benefits of both savings and checking accounts where you can earn interest, have check writing privileges and use a debit card to access your funds.
However, MMAs are typically subject to certain withdrawal limits each month - typically around six withdrawals. Although money market accounts are a less common type of bank account compared to traditional checking and savings accounts, they can be a powerful tool for managing your money, especially if you value flexibility and earning competitive interest rates.
The interest rates on money market accounts are also typically higher than those of savings accounts, although this can vary depending on the bank or credit union. This is because money market accounts are considered to be a higher-yielding investment than savings accounts.
To open a money market account, you typically need to have a certain amount of money saved up, often between $1,000 and $5,000.
QUICK TIP: In case you were wondering about Skyla's money market accounts, there's a $1,000 minimum opening deposit but there's no minimum balance required. Here's a better look at what you can get with our money market account.
If your MMA falls below the required minimum balance, you will likely be charged a fee. At Skyla, we don't have minimum balance requirement, however this can vary depending on the credit union or bank. If your Money Market account is at another financial institution, you typically can avoid this fee by making sure you keep track of your account balance and move money into your money market account, if needed, to meet the minimum balance requirements.
With a money market account, you can earn interest on your deposited funds while still having access to your money when you need it. However, it's important to understand the risks and benefits of money market accounts before opening one.
benefits and risks of a money market account
- Can access your money often times out of the month. Unlike certificate of deposit accounts where you're limited to accessing your money until it matures.
- Offer higher interest rates than regular savings accounts. This means that your money will grow more quickly over time, helping it to keep pace with inflation.
QUICK TIP: Want to see how high Skyla's interest rates are on a money market account versus other checking and savings account offered at the credit union? Check it out here >
- Can offer stability. This is by maintaining an established interest rate that does not fluctuate unpredictably. By keeping money in this type of account, you know exactly how much your money will grow over time, making money market accounts a great option for those who want to invest their money but also need some degree of certainty.
- High minimum deposit or balance requirement. This may be higher than what's required for a checking or savings account depending on the financial institution. Money market accounts often come with minimum balance requirements, or limits on the amount of money that can be deposited at one time, which may not work for people who want to save up a substantial sum of money.
- Transaction restrictions Even though you can access and withdraw funds from the account, many financial institutions typically allow a certain number of purchases and transfers each month (typically 6), which may not be appealing if you need quick access to your funds more often. Psst... If you do more than 6 transactions per month, financial institutions could charge a fee. The fee could be anywhere from $5 or $10 and up.
- Interest rates won't stay the same. Interest rates for an MMA may vary depending on the overall market's interest rates. This can mean you'll earn less interest. Psst... interest rates can rise as well but you can't predict what may happen with market rates.
are money market accounts fdic insured?
Yes, many money market accounts offered by banks are insured by the Federal Deposit Insurance Corporation (FDIC). Other financial institutions like credit unions, insure their money market accounts with the National Credit Union Administration (NCUA). Both the FDIC and the NCUA insure funds up to $250,000 per person.
QUICK TIP: At Skyla, savings are NCUA insured up to $500,000. Check it out >
can you lose money in a money market account?
While money market accounts are a low-risk investment, there's the potential to lose money. If a bank or credit union collapses, you could lose money if the financial institution is not FDIC or NCUA insured. At Skyla, we are insured by the NCUA.
money market account vs money market fund
A money market account and a money market fund are two different types of financial products that are designed to help investors save and grow their money. While both offer the potential for high rates of return, they differ in several key ways.
- Money market funds aren't insured by the FDIC or NCUA.
- You would have to pay to hold the money market fund.
- The minimum deposit requirement is typically larger than the required deposit for money market accounts.
- Money market funds are managed by professional investors and usually invest in low-risk options, like government bonds and treasury bills.
Both money market accounts and money market funds allow you to access your funds but many money market funds don't have as many restrictions.
money market accounts vs. certificate of deposit
When it comes to deciding between money market accounts and certificate of deposit accounts or CDs, there are a few key factors to consider.
On the one hand, money market accounts offer greater flexibility, as account holders have more freedom to access their funds without penalty or fees. As a result, money market accounts typically pay less interest rates than CD accounts, however they still give investors a better return on their money than a traditional savings account.
Just keep in mind, in order to qualify for most money market accounts, account holders must meet certain minimum balance requirements.
For those seeking a higher return investment option, a CD account may be the better choice. While these accounts typically come with higher interest rates than money market or savings accounts, they also come with some access limitations. CD accounts have strict withdrawal rules and penalties that prevent the money inside from being accessed until the CD matures or is redeemed early.
Want to know more on CD accounts? Check it out.
Money market accounts are ideal if you're looking for a safe, higher return investment but prefer anytime access. If your money market account falls below the required minimum balance, depending on the credit union or bank, you will likely be charged a fee.
QUICK TIP: To avoid this, make sure you keep track of your account balance and move money into your money market account if needed to meet the minimum balance requirements. You can also consider finding a financial institution like Skyla, that doesn't have a monthly minimum balance requirement!
If you think you won't need access to the funds for a set amount of time, then there are other savings options to consider. Certificate of Deposits, or CD may be a great option for you. Plus, the interest rate on a CD is generally fixed, which means it will not change for the duration of the CD's term and generally earn a higher interest rate. It's definitely worth checking out.
If a money market account or a certificate of deposit account isn't ideal for you at the moment, then a traditional savings account might be your best option. At Skyla we offer Primary Savings where there's no monthly fee with your $5 balance, free Online and Mobile Banking, you can accrue dividends daily on balances over $5, and more.
If you have any questions, any of the wonderful staff at your local Skyla branch will be more than happy to help! Not near a branch or short on time? Then simply send us an email or give us a call at 704.375.0183.
As the Content Specialist and author of the Learning & Guidance Center, Yanna enjoys motivating others by uncovering all that's possible in the world of finance. From financial tips and tricks to ultimate guides and comparison charts, she is obsessed with finding ways to help readers excel in their journey towards financial freedom.