Money Market Accounts: Reviews & Comparisons
You probably have a checking and savings account, but do you have a money market account? Money market accounts are less common, but they're often more profitable. The average annual percentage yield on money market accounts (MMAs) in the U.S. is 0.18%, compared to 0.10% on savings accounts and only 0.06% on interest-yielding checking accounts. Accordingly, you might earn more by moving your money into an MMA. Is an MMA right for you? Here's everything you need to know.
The right choice for you depends on how much money you have, how much liquidity you need, and how much you want to earn.
Money market account highlights:
- Interest-bearing deposit accounts.
- Offered by banks and credit unions.
- Higher interest rates than standard savings accounts (usually).
- Higher minimum balance than standard savings accounts (usually).
- Limited to only six withdrawals/transfers per month.
- FDIC or NCUSIF-insured.
- Less liquid than a checking account but more liquid than bonds.
- No set term.
What is a money market account and how does it work?A money market account (MMA) is a type of deposit account that yields higher interest than a traditional savings account. However, it also typically has a higher minimum deposit requirement and/or account balance requirement. The Federal Deposit Insurance Corp. (FDIC) insures MMAs provided by banks, and the National Credit Union Share Insurance Fund (NCUSIF) insures those provided by credit unions.
How money market accounts workWhen you store money in an MMA, financial institutions like banks and credit unions invest it into short-term, liquid securities like certificates of deposit (CDs), government securities, and treasury notes. As those investments earn interest, the institutions pay you according to an agreed rate, often on a monthly basis. There is no set term for the account. It can earn interest for as long as it remains open.
MMA withdrawal transaction limitsAll money market accounts and savings accounts are governed by federal law (Regulation D by the Federal Reserve). This limits the number of withdrawal transactions an account holder can make each month. The law states that you can't transfer money into or out of an MMA more than six times per month. This applies to transfers made via check, debit card, draft, online banking transfer, phone request, preauthorized agreement, etc. However, withdrawals made in-person at a banking office or at an ATM are not limited. If the withdrawal transaction limit is exceeded, the account can be reclassified as a non-interest bearing account, and may be subject to fees for each transaction that exceeds the limit.
Initial deposit requirementsAn initial deposit requirement for an MMA account is the amount you must deposit in order to open the account. These requirements vary from one provider to the next. For example, CIT Bank requires a minimum of $100, while USAA and BBVA Compass require a minimum of only $25. Banks and credit unions often have multiple tiers of deposits which correspond with increasing APYs. The more you deposit, the more interest you can earn.
Annual percentage yieldsThe annual percentage yield (APY) is the amount you earn per year on the money in your account, accounting for compounding interest. Here's a look at the average APY paid in the U.S. for non-jumbo deposits (of less than $100,000) by all insured depository institutions and branches for which data is available. As you can see, MMAs yield more than interest-yielding checking accounts and savings accounts, but less than most CDs. But remember, APYs vary between different MMA providers. They can can even vary between different accounts from the same provider, depending on your initial deposit.
Monthly service feesA monthly service fee is an amount you pay per month to keep your account up and running. Some institutions charge monthly fees, while others don't. Some institutions charge fees but offer ways to waive them, such as setting up a recurring monthly transfer to the account or maintaining a certain minimum balance.
Minimum balance requirementsA minimum balance requirement is an amount that some institutions require you to keep in your MMA. If you dip below the minimum amount, you'll have to pay a monthly service fee or close the account.
Excessive transaction feesAn excessive transaction fee is a fee that you pay when you exceed your monthly withdrawal limit. There may be a cap on how many fees you can incur per billing period. Note that too many transactions can result in your MMA being switched to a non-interest bearing account.
Other feesLook out for other fees, as they can add up and negate your interest earnings. These include (but are not limited to) fees for wire transfers, statement copies, processing foreign checks, etc. Now that you know the basics of how money market accounts work, here's how they compare to other account options.
Money market accounts vs. other account optionsSo, should you get a money market account? How does it compare to your other options?
Money market accountIf you want to make a stable and secure investment with modest returns while still having access to your money, an MMA is a good option. However, most MMAs offer the best rates once you invest $10,000 or more. If you're only looking to store a small amount of money, your returns may not be as impressive. You can withdraw from your MMA up to six times per month, which allows you to access your money if you need it. Additionally, you may need to maintain a certain minimum balance in order to avoid a monthly service fee.
WEIGH THE RISKS & BENEFITS OF MMAS
Here is a list of the benefits and the drawbacks to consider.
- Easy access to your money.
- Check writing abilities and debit cards available from some institutions.
- FDIC/NCUSIF-insured up to $250,000 per account.
- Higher APYs than many traditional savings accounts.
- No set terms for maturity.
- Restrictions on withdrawals/transfers (three to six per month).
- Minimum balance requirements.
- Monthly fees.
- Initial deposit requirements.
Interest checking account vs. MMAIf you need more comprehensive access to your funds, consider an interest-bearing checking account, which allows unlimited withdrawals. Further, these accounts typically have low minimum deposit requirements and low fees, making them a flexible option for those moving small sums of money. However, interest checking accounts also have low interest yields. And having unlimited access to your money might make it difficult to save.
Traditional savings account vs. MMAWhen compared to a savings account, MMAs usually offer higher APYs, but they often require higher deposits to take advantage of those higher APYs. And savings accounts have the same withdrawal limitations as MMAs, limiting easy access to your money. If you don't have much to deposit (less than $2,500), a traditional savings account might be your best bet.
Certificates of Deposit (CD) vs. MMACDs can earn you more interest than MMAs, especially with terms of six months or longer. However, if you withdraw your money early, you'll have to pay a withdrawal penalty, which can cancel out your earnings and even eat into your principal. If you want a stable, secure investment that you will not touch for the full term (one to 60 months), CDs are a good option.
|Account Type||Minimum Deposit Requirements||APY||Liquidity||Set term||Check/debit card access|
|Savings||Often $0-$500||0.01||Select types of withdrawals/transfers limited to 6 per month||No||No|
|Money Market Account||Often $0-$2,500 or higher||0.18||Select types of withdrawals/transfers limited to 6 per month||No||Yes|
|CD (12-month)||Often $1,000-$10,000||0.66||None. All withdrawals before the end of the terms are subject to penalties||Yes||No|
Frequently asked questions about money market accountsNext, let's look at some frequently asked questions about money market accounts.
Which money market account is best?The best money market account for you depends on your circumstances. MMAs vary in minimum deposit requirements, APYs, fees, and minimum balance requirements. To find the best account, look for the highest APY at the lowest cost with the least amount of restrictions. Also, be sure to consider the company's reputation and reviews.
What are money market accounts paying?The national average APY on money market accounts is currently .18%. However, the banks and credit unions that SuperMoney monitors offer APYs all the way up to 2.23%, with yields around 1% being fairly common. Online financial institutions often offer the best rates.
What are money market accounts good for?Money market accounts can be a good place to invest your money and earn a modest return. They often offer higher returns than savings or interest checking accounts. Further, they offer more liquidity than CDs. However, MMAs are most profitable when you deposit thousands into the account and then leave it alone.
What is a money market account's interest?Money market accounts pay interest on the money in your account according to the APY you were assigned. Your APY is set based on the going rate and how much money you initially deposited.
What is the difference between a money market account and a money market fund?A money market account is an insured deposit account from a bank or credit union which they invest in stable, low-risk vehicles. A money market fund is an open-ended mutual fund offered by select banks, brokerage houses, and mutual fund companies which they invest in short-term debt securities. It is not insured because it's considered an investment account rather than a deposit account. Money market funds are considered relatively safe. They offer higher yields than MMAs, but also carry more risk.
When do money market accounts pay interest?Most money market accounts pay interest on a monthly basis as long as you have money in the account and meet the account's requirements.
Who offers money market accounts?Banks and credit unions across the United States offer money market accounts.
How are money market accounts taxed?The interest earned on a money market account is considered taxable income. The amount of tax that you pay depends on your income and tax bracket. If you earned at least ten dollars in interest in a year, you'll receive a 1099-INT form and can use it to report those earnings.
How are money market accounts insured?Money market accounts are insured by the FDIC and NCUSIF.
How is the interest in a money market account calculated?With most money market accounts, interest is calculated daily. How do you calculate it? First, divide your APY by 365 to get the daily rate. For example, if your rate is 2%, your daily rate would be 0.005. Next, multiply your balance by the daily rate. Do this for every day of a month, and then add each of those figures together to get your total monthly interest earned.
How safe are money market accounts?Money market accounts are very stable and safe because the funds are insured by the FDIC and NCUSIF and invested in low-risk vehicles.
How much do money market accounts make?The average APY on money market accounts in the U.S. is .18%. That means that if you had $10,000 in an account, you'd make $18 by the end of the year. However, if you found an account with a 2% APY, you could earn $200 in a year's time.
How can I start a money market account?The best way to start a money market account is to figure out how much money you have to invest. Next, shop around to find the best account for your needs. Then, apply to open the account, deposit your money, and start earning.
How liquid is a money market account?Money market accounts are more liquid than CDs but less liquid than checking accounts. Like a savings account, the number of withdrawals you can make within a month is limited by Regulation D. It is designed to be an account where your money is left alone for the most part, but where you can still access it for emergencies.
Are there money market accounts with no minimum deposit?Money market accounts without minimum deposits do exist. However, be sure to check the APY before you deposit your money. APYs for accounts without a minimum deposit are usually low.
Do money market accounts come with check writing?Some, but not all, money market accounts come with the ability to write a limited number of checks per month.
Do money market accounts come with bonuses?You may find some money market account offers that include bonuses or promotions when you sign up. The reward could be cash, an introductory APR, etc.
Is a money market account right for you?Interested in a money market account? It may be a good fit if you:
- Want to earn more interest than you can earn in a savings account.
- Have at least a few thousand dollars to deposit.
- Want an account that is more liquid than savings or CDs but earns more interest than checking.
- Want to be able to write checks.
APY (Annual Percentage Yield)
APY Minimum Balance
Minimum Opening Deposit