What Is A Money Market Account?

A money market account combines the features of a checking account into a savings account. With easy access to your funds like a regular checking account, you also get the benefit of higher dividends like a savings account with this account type. However, there are some limitations to note.

How Does It Work?

Like a traditional savings account, a money market account compounds interest on your account balance, which grows your savings. However, you usually need a larger lump sum of money to open the account and it offers a higher interest rate. With any savings account, the higher the interest rate and the more money in the account, the more it grows passively! It is encouraged to keep as much as possible tucked away into this account to earn more, but with checking account features like limited withdrawals, it’s a great short-term investment account with the option to be liquid.

Pros

Higher Interest Rates

One of the biggest advantages of a money market account is its higher interest rates, increasing your return and allowing your money to grow quicker and quicker without any additional effort. This account type holds great potential for growth over time.

Accessibility To Funds

What happens when an emergency or unexpected expenses come up? With a money market account, you have easy access to your funds. Other investment accounts, like savings certificates, make it difficult to tap into your funds. They lock your money up for a certain amount of time and incur penalties for early withdrawals. With a money market account, you can pull money out when you need it – the only limit is how many times you can access the funds each month, and sometimes transaction amounts must meet the minimum threshold.

Low Risk Investment

When you open a money market account with a financial institution it is usually protected by an insurance program like the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). This protection is in place so that if your institution fails for some reason, the FDIC or NCUA will keep up to $250,000 of your funds safe. Ensure your bank or credit union is insured by one of these organizations.

Cons

Minimum Deposit Requirements

Many financial institutions require large deposits to open a money market account and qualify for higher interest rates, anywhere from $1,000 to several thousand or more. It can be difficult to come up with enough money to deposit originally, but the higher interest rate is worth the payoff.

Limited Monthly Transactions

It varies from financial institution to financial institution, but many limit the amount of transactions pulled from the account each month. This limitation is to encourage saving rather than spending. Most have a cap of 6 withdrawals or transfers per statement cycle. If you exceed the limit, the financial institution may hold you liable for fees or even close your account.

Fees

Some financial institutions assess fees, like monthly maintenance fees or fees for exceeding transaction limits. While some of these can be avoided, they can definitely cut into the benefits of your money market account.

All things considered, money market accounts can be the perfect fit for someone who needs to achieve their short-term goal with flexibility. This unique account combines the benefits of both savings and checking accounts and may be the account you need to meet your financial goals.