A money market account is a type of savings account that typically pays higher interest rates than a standard savings account in exchange for requiring a higher minimum balance.
While the interest rate on a money market account is usually higher than the rate on a regular savings account, it’s still relatively low compared to other investments such as stocks or bonds.
How Does a Money Market Account Work?
A money market account is similar to a savings account in that you can deposit and withdraw money at any time without penalty. The main difference is that a money market account typically pays a higher interest rate than a savings account.
To open a money market account, you’ll need to deposit a minimum amount of money, which will vary depending on the bank or credit union. Once you have the minimum deposit, you can use the account like a regular savings account. This means you can make as many deposits and withdrawals as you want without penalty.
However, if you make more than six withdrawals from your account per month, you may be charged fees by your bank or credit union. And if you exceed the Federal Reserve’s limit on transfers from savings accounts—which is currently six per month—you may also be subject to fees.
There are several key differences between money market accounts and regular savings accounts, including the following:
- Minimum Balance: Money market accounts typically require a higher minimum balance than regular savings accounts. This minimum balance can range from $1,000 to $25,000.
- Interest Rate: Money market accounts also typically offer a higher interest rate than regular savings accounts. The interest rate on a money market account is variable and depends on the financial institution as well as the current market conditions.
- Withdrawals: Money market accounts typically allow six withdrawals per month, while regular savings account have no limit on the number of withdrawals you can make.
- Checks: Some money market accounts come with a debit card and/or checks, while others do not.
How to Open a Money Market Account
There are a few things you’ll need in order to open a money market account, including the following:
- A valid form of identification, such as a driver’s license or passport
- Your Social Security number
- Your date of birth
- Your current address
- Your email address
Once you have all of the required documentation, you can open a money market account either online or in person at a bank or credit union branch. The process for opening an account online is typically quicker and easier than opening an account in person.
When you open a money market account, you’ll be asked to make an initial deposit. This deposit is typically in the form of a check or electronic transfer from another bank account. Once your deposit has been processed, you’ll be able to start using your money market account.
Usage Requirements for Money Market Accounts
Once you have opened a money market account, there are usually certain usage requirements that must be met in order to avoid fees. For example, many institutions require that you maintain a minimum balance in your account at all times. If you fall below this minimum balance, you may be charged a fee. Additionally, most institutions limit the number of transactions (withdrawals, transfers, etc.) that you can make per month without incurring a fee. Be sure to review the usage requirements for your particular account so that you avoid any unwanted surprises down the road.
What Are the Benefits of a Money Market Account?
The main benefit of having a money market account is that it offers relatively high interest rates, which can help your money grow faster than it would in a regular savings account. In addition, money market accounts offer liquidity, which means you can access your deposited funds at any time without penalty.
Should You Get a Money Market Account?
Whether or not you should get a money market account depends on your financial goals and needs. If you’re looking for an investment with higher potential returns than what’s offered by most savings accounts, then investing in stocks or bonds may be right for you.
On the other hand, if you want to keep your money safe while still earning some interest, and you don’t mind keeping track of your monthly withdrawals, then a money market account could be a good option for you.