Best Money Market Account
Money market accounts are a special type of savings account that typically offer higher interest yields than regular checking and saving accounts. Of course, that’s not really saying much. The average money market account rate is 0.08%, compared to 0.06% for regular savings accounts and just 0.03% for interest checking accounts (as of 18 October 2021). It may not sound like a lot, but the extra 0.02% to 0.05% could make a noticeable difference in your interest earnings over time.
Common Questions
What is a money market account?
For anyone unfamiliar with this type of account, here’s a quick definition. Money market accounts are savings accounts that come with higher interest rates. They offer convenient banking features that other savings accounts lack, such as check writing and debit card access. Like any financial product, these types of accounts have some drawbacks, such as high minimum balance requirements and monthly maintenance fees.
But overall, this type of account can be a sound option if you want to earn more interest on your savings without taking any risk. If you’re wondering if money market savings accounts are FDIC-insured, the answer is yes. Money market accounts have the same protections as savings and checking accounts — up to $250,000 per depositor. (For money markets accounts offered by credit unions, the insurer in different, but the protections are similar.)
Why is a high interest rate important?
Finding a money market account that offers high interest rates is important because it allows you to grow your savings faster. For example, you have $10,000 in a money market savings account. The difference in earnings over one year between a 1.75% APY, Sallie Mae’s money market rate for January 2020, and a 0.16% APY, the national average at that time, would be $159.
The 0.16% APY would only earn you $16, while the 1.75% APY would earn you $175. Rates across the board are lower now, of course, but the principle remains valid. So shop around for competitive APYs and also be sure to consider monthly maintenance fees because they can cut into your earnings.
Where the interest comes from
When you store money in a money market account, 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.
When does a money market account make the most sense?
A money market account is a great place to stash savings that you’ll need in the near future. Unlike certificates of deposit, these types of accounts allow you to access your cash at any time, as long as you stay under the transaction limit. That’s why they’re a great way to store money you need to withdraw on short notice, like your emergency fund.
Money market savings accounts are also a good place to put the money you’re saving for short-term goals. For instance, if you plan to take a trip, you could deposit your money a few times a month to earn extra interest while saving up for it.
You won’t have to wait for your certificate of deposit to mature before you take your trip. You’ll be able to withdraw your money and go. So if you want more flexibility, a money market account makes sense.