In this article, we’ll review what exactly money market accounts are, why you’ll want one, and which ones are best.
Best money market accounts overview
|Money Market Account||Best For|
|UFB Direct||High-balance APY|
We reviewed several money market accounts offered by different banks and came up with our list of the best money market accounts today.
Best money market account for beginners
The CIT money market account is ideal for people just starting out on saving and investing. The bank offers a mid-range interest rate at 1.00% APY. The area where the bank shines is the initial deposit. You can start an account with as low as $100.
The CIT money market account is FDIC insured up to a limit of $250,000.There is no minimum balance requirement or monthly service fee. You can make up to six transfers or withdrawals every month for free and additional transactions cost $10 per transaction. There is a $10 fee on wire transfers which is waived if you maintain a balance over $25,000 in the account.
Best customers service
The Discover Bank Money Market Account is FDIC approved and great for account investment of less than $100,000. They offer an interest rate of 0.65% APY for balances below $100,000.
The bank has over 60,000 fee-free ATMs around the country. You can open an account with $0 and there are no monthly maintenance fees or minimum balance charges to worry about.
The bank does not have any branches and you can open an account online through their website.
Best money market account with high-balance APY
UFB offers one of the highest interest rates out there on money market accounts, but there are also specific requirements for account holders. The account provides an interest rate of 0.40% on balances of $25,000 or higher. For the first $25,000, the bank offers an interest rate of 0.50%.
The account is backed by FDIC insurance for up to $250,000. The entire account management can be carried out online without the need to visit any branches physically.
The account offers no introductory offers, but there is no minimum balance requirement either. At the time of opening the account, you will need to submit a deposit of $5,000. If the balance falls below this minimum threshold, the bank charges a fee.
Best value money market account
Citizen Access is another good savings account option for people looking for a good return with low investment. The interest rate offered on the account is 1.50 percent, and you need to maintain a minimum balance of $5,000 in the account.
The account is FDIC insured, and there is no monthly account fee. The bank has no branches, and transactions are carried out entirely online.
What is a money market account?
A money market account is a type of safe, yet liquid investment account. It offers the best features of both a checking and savings account. You can withdraw money from the account at any time, but also earn a profit on the balance in the account.
A money market account can be opened through various banks, including brokerage firms and some robo-advisors. Your deposits are typically held in mutual fund accounts invested in very safe, short-term assets.
In managing a diversified portfolio, banks can give their clients access to the cash in their account while paying rates that are higher than many other account types.
Money market accounts can be divided into two types:
- First, there is a money market deposit account, available through regular commercial banks.
- The second type is the money market mutual fund accounts maintained with mutual fund brokers.
Generally, you can get higher rates with mutual fund companies or brokerages, but they are also riskier. Mutual fund deposit accounts held at an approved bank are FDIC-insured. They are often grouped into other safer savings investments such as CDs or high-yield accounts.
Banks promote money market accounts to clients who maintain substantial money in the bank. You get benefits that you won’t find with a traditional savings or checking account.
What’s the difference between an MMA and a savings account?
Traditional savings accounts have evolved over time, and in some cases, a high-interest savings account (often found at online banks) may meet or exceed the rates offered by an equivalent money market account.
For example, a standard savings account might require a lower opening deposit as well as a lower month-to-month minimum balance versus a money market account.
However, one downside to consider is that the account might just pay a lower yield than its money market counterpart, and checks may not be able to be written against the account.
By reducing the costs related to conventional savings accounts, such as taking care of a wide range of brick-and-mortar locations, many online organizations can give higher bank interest rates as well as offer much more practicality while still generating a profit.
The good news is, these product lines have not really shifted the fundamental appeal of a standard savings account that has:
- FDIC insurance protection
- A guaranteed rate of interest
- Excellent safety and security
- Good liquidity
So to summarize, a standard savings account may get you an attractive rate of return with lower fees and monthly minimums, but a money market account typically has bonus offers and the ability to write checks.
Why you should use a money market account
A money market account is, in our opinion, an essential piece of an investment portfolio. We just told you that you can get a really nice online savings account with comparable rates, but a money market account has its benefits.
They’re FDIC insured
First, the FDIC insures money market accounts up to $250,000 per account, making them low-risk and safe investments. This makes the account popular with people as it protects them versus a loss of deposit. Also, your deposits will be safeguarded by the National Credit Union Administration if your account is with a credit union.
Easy access to your money
Another nice feature is that you can quickly access your money market account through checks, transfers, and ATMs. And if you bank online, you’ll see your money market account shown as you would any other savings or checking account.
And with most banks, you’ll be able to move cash between accounts as you would with standard savings or checking (as long as you haven’t surpassed your account limits).
They have higher interest rates
Finally, money market accounts often pay higher rates of interest than other types of savings accounts, assuming they maintain the minimum balance required. The rates of interest are tiered and credited monthly, so a money market account accumulates more earnings as the account balance increases.
Who is a money market account best for?
We think everyone should have a money market account unless you haven’t fulfilled some other basic investment accounts first.
If you have the following accounts in place and being funded, you should open a money market account:
- Checking account
- Traditional or online savings account
- Roth IRA
- 401k (if employed, otherwise a SEP IRA)
Once those accounts are open, go open an MMA.
Misconceptions about money market accounts
Every type of investment carries a particular bit of risk. As a smart investor, you should consider the factors that can affect your commitment to the investment.
- Will you need to take money out halfway through the maturity period?
- Do you want a reasonably safe investment where your capital is insured by a federal agency?
- Should your investment offer a high enough interest rate that covers the cost of inflation?
Money market accounts offer the best investment option for people who cannot be sure about making long-term monetary commitments. There are generally no minimum balance requirements or severe restriction.
However, read the fine print because account holders do face certain restrictions on using these accounts:
- The account holders are not entirely free to make transfers. As per the Federal Reserve Regulation D, account holders are limited to six transfers per month. Customers who make over six transfers are charged a fee.
- You are only insured up to $250,000 on a money market account.
- A money market account is not a money market fund, despite there being similarities to it.
- Putting money into a money market account does not necessarily protect your savings against inflation. If the prevailing inflation rate is 6 percent and the account gives a return of 1.8 percent, then your savings will erode in value.
The basis for evaluating money market accounts
To maximize their benefits, investors should consider several factors for choosing the right money market account. Some of the critical elements include introductory offers from the bank, initial deposit requirement, and minimum balance in the account.
Investors should also consider the costs and restrictions on making withdrawals, the ease of account set up, and how quickly they can access funds while moving around.
We have looked at these factors to evaluate the best money market accounts. The factors we considered necessary for evaluating the top money market accounts include:
This is the annual percentage yield (APY) that is offered on a money market account. The higher the return, the better it is for the client. Most money accounts these days provide a yield between 1.35 percent and 2.65 percent.
This determines whether the money market account is insured by the FDIC or not. The FDIC provides deposit insurance of up to $250,000 for individual depositors, per banking institute.
Accounts insured by the FDIC reduce investor’s risk, so it is better to have an account approved by the FDIC.
These include any fees charged by the bank on their depositors. Some banking institutes charge deductions on cash withdrawals, direct debits or annual fees on the account. The lower the charges on operating the account, the better.
Banks generally offer some kind of introductory benefit to the account holder for an initial period; usually six months to one year from the date of opening the account.
For example, the bank may charge no fees on cash withdrawals or provide 20 free fund transfers for the first year. Whether these benefits are actually useful to clients depend on their circumstances, but the more benefits offered by the bank, the better.
Long-term deposits and savings accounts prohibit a customer from taking out too much cash from their account. Money accounts are an exception because customers may take out as much cash as they want, even all of it.
If there are restrictions, the account isn’t considered very favorable for the client.
Ease of account setup
The ease of setting up the account can play a significant role in where you open your account. Some banks only allow new clients to open an account through referrals or an invite from the bank. Others make it as easy as opening a website and clicking a few links.
A bank may place restrictions on certain account holder transactions. For instance, clients may be restricted in the number of cash withdrawals, wire transfers, or the total amount of direct debits they can make in a single day.
Banks that place no restrictions are obviously better for customers.
Minimum balance is the amount required that must be in the bank. If the client’s balance falls below the minimum level, the bank usually applies a charge.
Ideally, there should be no minimum balance requirement as it works in the client’s favor.
The money market account can be a great investment option for individuals and small business entrepreneurs. People looking to earn interest on their savings while still keeping their assets liquid would prefer a money market account.
A money market account should be a part of every investor’s portfolio. As a rule of thumb, at least 20 percent of your total savings should be maintained in a money market account. The exact number depends on an individual’s needs.
If you are considering keeping some of your funds in a money market account, evaluate different providers based on interest rates, fees, and ease of getting your money out. Promotional offers from banking institutes will also play a part in your decision.