Living expenses continue to increase, which is why it’s essential to understand how to help your money work harder for you and what accounts to consider for your financial situation. Now is the time to make saving your money a more significant part of your financial plan. Discover if a money market account is the right savings vehicle for you and your goals with the below information.
What is a money market account?
A money market account is a unique deposit account that allows you to save money at a competitive interest rate with multiple ways to access your funds. These accounts typically require a higher opening deposit and minimum balance than traditional savings accounts, but, in return, they can provide more pay back through higher interest rates.
Am I ready to use a money market account?
Money market accounts are highly accessible options to level up your savings plan. If you are able to pay your bills and still have funds left over each month for saving, you may have an opportunity to open a money market with this excess cash.
You will need a bit of a savings head start before you open a money market – required opening balances can be $10,000 or higher. Before making your decision, it is a good idea to talk with a trusted financial professional to determine that it makes sense for your budget.
How does a money market account work?
A money market account is a valuable savings option, especially in times of uncertainty. Most money market accounts include the following features and benefits:
- Interest paid on tiered balances
- Earn interest based on the amount of funds in your account. In some instances, the interest rates paid on your deposits increase as your account balance increases.
- Debit card access and check-writing capability
- Access your funds like you do with your checking account with a debit card, the ability to write checks and make electronic transfers with your money market account. Check with your financial institution for any withdrawal limitations.
- Unlimited deposits
- You can add funds to your account whenever you like, and there is no limit on the amount. The more you save, the more impactful the interest rate if there are higher rate options for larger account balances.
- Flexibility for savings and purchases
- Your account can be a great tool to help you achieve your savings goals and provide you flexibility when making larger short-term purchases (i.e., down payment on a car or vacation).
Before setting up your account, it is important to be aware of the potential drawbacks, such as withdrawal and transfer limitations or lower interest rates when compared to other types of savings accounts. And, in some cases, if you can’t meet the minimum balance required for these accounts, you may have to pay a monthly fee. If you are concerned about any of these account features, speak with your financial professional and they can walk you through the benefits.
Here’s how you can get started with your money market account
To begin, you need to research the account that best suits your financial situation, needs and goals. It is important to compare rates between money market accounts to find the one with the highest annual percentage yield (APY).
According to the latest numbers from the Federal Deposit Insurance Corp. (FDIC)‡, the average APY for money market accounts is 0.67% compared to 0.45% for savings accounts and 0.08% for checking accounts. If you were to put $10,000 into a money market account with an APY of 0.67%, you would earn roughly $67 in interest over 12 months, as opposed to earning just $45 during that same period in a savings account with a 0.45% APY.
Remember, your APY with a money market may increase as your account balance does. Be sure to pay attention to the minimum opening deposit requirements and any potential monthly service fees. Once you open your money market account, you can also access features like direct deposits and online banking.
A money market account can be a beneficial part of your savings plan, but do your homework before jumping into one so you have a good understanding of the requirements, value and impact.
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