Do Money Market Accounts Make Sense For You?

If you’ve built up several thousand dollars in your checking account, it’s high time you consider other options, such as the money market deposit account. Checking accounts typically earn no interest, and those that do average just 0.05% APY. That isn’t much of a yield, but it’s the price you pay for liquidity, the ease of withdrawing whenever you’d like.

You might consider giving up that liquidity for higher interest with a savings account or CD (certificate of deposit), but these types of accounts offer little flexibility in the ability to make withdrawals or payments with the funds. Instead, a money market account can provide a sort of middle ground between checking and savings.

Dollars and cents

If you’ve built up several thousand dollars in your checking account, it’s high time you consider other options.

Introducing the money market deposit account

A money market account (MMA or MMDA) often requires a minimum deposit, sometimes as little as $100 or as much as $2,500. Your bank or credit union will also limit the number of transfers and withdrawals to six times a month. In return, you’ll earn much higher yields, which are often tiered, meaning that the higher your balance, the higher the interest rate.

Despite placing a limit on withdrawals, banks will often allow customers to write checks from a money market account, as you would from a standard checking account. This means that you can earn higher yields on your excess cash, while still paying your bills from the same account.

MMDAs offer security in the form of federal insurance (through the FDIC or NCUA) as well as a fixed rate of return. These features distinguish the deposit account from a money market fund. Despite the likeness in their names, they’re quite different. Money market funds are mutual funds, which react to the market: their return to you is vulnerable to the boom and bust of the economy. This doesn’t mean that they’re a bad investment, they just require a great deal more research and some risk tolerance before you take the leap.

With a money market deposit account, you can instead depend your money safely and steadily growing in value.

So What’s the Difference?

A money market deposit account is relatively high-yield, but it often won’t earn you quite as much as a CD, which requires locking in your funds for a specified period of time. Your choice between the two depends on how comfortable you are with low liquidity and if you can wait to withdraw until the CD reaches maturity.

Savings accounts sometimes offer lower interest rates for fewer requirements than the money market account. They may require as little as $5 for a minimum deposit instead of $1,000+ (more typical for a money market account). Again, it depends on the bank or credit union, so make sure to verify the rates. Sometimes a high yield savings account will earn you more than a money market at your local bank would.

John Gower writes for NerdWallet, a personal finance website dedicated to helping consumers learn more about their personal finances and save money on money market accounts, checking accounts, credit cards and more.

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