Are you looking for a safe place to keep your savings, your emergency funds, and other large sums of money? Do you want your savings account to earn more interest? Then you should definitely consider getting one of the best money market accounts out there.
Money market accounts (MMAs) are designed to keep your funds safe and liquidated, providing a secure investment that helps you reach your savings goals. MMAs almost always offer higher interest rates than a checking account, as well as other benefits. They are available at most brick-and-mortar banks, as well as online banks. However, these accounts are less accessible than regular savings accounts and are often misunderstood. So what are money market accounts, and how do they work? What are their significant pros and cons? How do you find the best money market accounts?
This guide will reveal in detail the standard bank product to help you decide whether you should open a money market deposit account for yourself and start a low-risk investment journey. We will also list the best money market accounts, based on factors such as annual percentage yield (APY), minimum balance requirements, and availability.
What is a Money Market Account?
Money market accounts are deposit accounts that are offered by banks and credit unions and can be used for short-term or long-term savings. A money market account is a good option for these situations and types of savings:
- Emergency savings
- Saving a home or car purchase, or other significant investment
- Earning a higher yield in comparison to your current savings or checking account
- Growing money that is not currently invested but will soon be put in some form of investment
MMAs offer a debit card and the ability to write checks, which makes this type of account a combined savings and checking account. But, unlike traditional savings accounts and certificates of deposit (CDs), they pay higher interest rates. Even though CDs usually pay a higher rate than standard savings and checking, they can trigger a hefty penalty if you withdraw funds before the term ends, unlike MMAs.
Some Cons With Money Market Accounts
However, money market accounts might limit the number of certain types of withdrawals and transactions per statement cycle (up to six). In case you do more than six monthly withdrawals, fees will be charged, which will reduce your earnings. They also might require a higher minimum balance and minimum opening deposit, usually $1,000, $2,500, or even $10,000.
Best Money Market Accounts vs. Money Market Funds
It is also essential to understand that money market accounts are very different from money market funds. A money market fund is an investment fund that enables you to invest in cash and cash equivalents. A money market account is a low-risk banking instrument. It is not an investment fund, which is why it is also called a money market savings account or money market deposit account.
How Does a Money Market Account Work?
A money market account is primarily a savings account that is a perfect place to hold your savings temporarily. One of its most prominent features is that money market rates are higher than the rates for a savings account. Take a look at the average bank interest rates in the United States:
- The national average money market account rate is 0.1%
- The national average savings account rate is 0.09%
The main reason why an MMA can offer a higher rate than a savings account is that they are permitted to invest in CDs, government securities, and commercial paper. It is important to note that money market rates (annual percentage yield – APY) can change depending on economic conditions. The high-yield money market offers the highest interest rate that compounds, enabling you to collect interest on your interest. The annual percentage can go higher than 2. For example, if you open the UFB Direct Premium Money Market, you can earn 2.25% APY on an account balance of $25,000 or higher.
Online banks generally offer a higher annual percentage of money market accounts.
Depositing and Withdrawing
If you want to deposit money once you open a money market at a bank or credit union, you can do it as many times as you wish. You can deposit in person or via a mobile phone app, or by U.S. mail or phone. On the other hand, when it comes to withdrawals, things get a bit more complicated. The Federal Reserve and Regulation D limit you to six transfers and electronic payments. Transactions that count toward this limit include:
- Pre-authorized or automatic transfers
- Wire transfer
- Checks or debit card
- Third-party fees
- Telephone transfers
- Electronic transfers
- ACH transactions
Transfers in person, by mail, by messenger, or at an ATM do not count toward this limit. If you exceed the number of allowed monthly withdrawals, your bank or credit union might charge you fees or move your funds into regular checking after closing your account.
In addition to monthly withdrawal limits, there are also minimum balance requirements. To open an account, you have to make a minimum deposit. For you to receive the maximum interest rate and avoid monthly fees, you have to maintain a minimum daily balance. The good news is that some MMAs require no minimum balance. The amounts of minimum balance and deposit vary among financial institutions.
Advantages of Money Market Accounts
There are plenty of reasons for opening a money market account. Some of the most significant include:
Money market accounts pay interest, just like traditional savings accounts. But, account holders will get better interest rates on a money market account than they will get from a conventional savings account. For example, if you have $50,000 in funds, you could earn about $1,000 in interest after a year, based on the current top-end 2% rate. In comparison, the same amount in a savings account at the same bank would earn $875 (1.75% rate).
Easy to Access
Another great advantage of MMAs is their liquidity, which means they make it easy to access your money. This makes it ideal for account holders who want to earn interest and access their funds quickly. They can do that by writing checks, withdrawing cash, making wire transfers, or using a debit card to make purchases. Other account types offer the same benefits, but you will get a better deal from the best money market accounts.
MMAs are a standard banking instrument, which means they are available at banks, credit unions, brokerages, fund managers, and other financial institutions. Opening an MMA at the same institution that hosts your checking and savings account may grant you some great perks. However, shopping around and comparing rates might land you even better features and a higher interest rate.
Money market accounts are generally a safe investment and a safe place to store cash because they are insured by Federal Deposit Insurance Corporation (FDIC). In the case of a credit union, these accounts fall under the protection of the National Credit Union Administration (NCUA). This is a significant benefit. The FDIC and NCUA provide up to $250,000 per depositor per institution insurance coverage. This means that if the bank or credit union fails, which is very rare these days, the depositor is covered by this insurance.
In addition to this safety net, another reason why MMAs provide security is that they come with a slight risk. The banks can invest the money in low-risk, short-term investment (government securities, CDs) and then split the return with you after the investment matures.
Downsides of Money Market Accounts
Despite the many benefits of money market accounts, there are a few disadvantages that might be a deal-breaker for some people. Before you open a money market, take a look at some of the potential downsides:
Financial institutions require account holders to maintain a minimum balance in their MMAs. For example, an MMA at the Bank of America might only be available if you have at least $2,500 to place in it. If you fail to maintain your minimum balance, you will be charged monthly fees. If you want to open the Premium Money Market Account at the Commerce Bank, you need to maintain a minimum daily balance of $5,000.
Money market accounts often have stricter requirements concerning a minimum deposit in comparison to savings and checking. Banks are likely to require a minimum deposit before allowing you to claim the stated rate. For example, when opening a 360 Money Market Account at Capital One, you need to have a $10,000 daily balance if you want to earn 1.9819% interest (with a percentage yield of 2.00). If your daily balance is less than $10,000, you’ll earn 0.8467% interest, (with an annual percentage of 0.85). On the bright side, there are MMAs that require low or no deposit.
A limited number of monthly withdrawals and transfers – MMAs are considered to be a savings vehicle. For this reason, the Federal Reserve limits the number of monthly withdrawals and transfers to discourage draining of funds. As mentioned previously in the text, you will not be able to make payments with your debit card or checkbook more than six times per month. That poses an inconvenience (and fees) to account holders who need to make an emergency withdrawal that will exceed the monthly number of withdrawals permitted.
Financial institutions often offer initial interest rates when you first open a money market account. The rate is not permanent, and after it expires a normal or higher than the standard rate will apply. Make sure you do not mistake an introductory rate for a lifelong interest rate.
Variable Interest Rate
Rates for CDs and high-yield savings accounts tend to fluctuate. The interest rates of money market accounts can vary, too, which means that they are variable and depend on changes in the overall market interest rates. If market interest rates fall, the bank or credit union can reduce your rate. The only exception to this is an introductory rate, which is usually offered and guaranteed for the first few months after opening an account.
Suggested Reading: How to Pay for College
How to Choose the Best Money Market Accounts
When shopping around for a money market account, there are two things to focus on: APYs and minimum balance and minimum deposit requirements.
To acquire stated annual percentage yield and avoid maintenance fees, you should research the requirements concerning a minimum balance.
Compare rates, keeping in mind that the best money market accounts have rates that are at least 2%. But why is an annual percentage yield significant? Well, let’s say you have a balance of $10,000. If an account has a 0.10% APY, you will earn about $10 after one year. If its annual percentage is 2, you will make $200 after a year. High money market rates matter because they dictate the size of your earnings.
In addition to rates, minimum deposit, and balance requirements, you should also look at other features, such as accessibility. Will you be able to write checks and use a debit card to access your funds? These transactions are usually limited, so if you are going to use your money daily, then perhaps you should consider a regular checking account. Choose a fund that allows withdrawal privileges that work for you instead of an MMA.
And finally, don’t forget the fees. Make sure you understand them, including an annual fee, inactivity fee, a monthly service fee, a paper-statement fee, as well as penalties. Read the fine print and ask for additional information from a bank, credit union, or other institution you are planning to work with.
You might consider an IRA money market account for retirement planning. IRAs are designed for retirement savings, and people fund them with a growth-oriented investment. In some instances, you can add valuable stability to your IRA by putting a portion of it in a money market. This is a valuable investment of funds you cannot afford to miss. IRA money market can be very beneficial, especially once you hit reach retirement age and when changes in the value of your retirement savings get disruptive. IRA money market also provides liquidity for retirement withdrawals.
How to Open a Money Market Account
After shopping around, comparing rates and other requirements, it is time to open an MMA. You can do that by visiting an actual physical branch location or going online.
Visiting a brick-and-mortar bank
Not so long ago, you had to go to the bank to open a money market or any other type of bank account. You can also do so today, but paperwork might be a real hassle, especially if you are not familiar with what documents you need in advance. Despite the trouble with required files and strict regulations, some people still prefer this option over opening an account online because they are scared of sharing their sensitive personal information over the internet.
Filling Out An Online Application
Online banking has become very popular because it is safe, secure, and quick. You can use the internet to open an MMA. All you need to do is to fill out an online application, and you will get approval in minutes. You need to provide information such as:
- Date of birth
- Social Security number
- Driver’s license or passport, and other information
If you already have a checking or savings account with the bank you want to open an MMA, then the existing data will be used for the new application. This is a convenient way to save valuable time in your busy life.
Funding Your Account
After the bank has approved your account, you need to support it by putting a deposit into it before the account is ready for you to use it. You can do that by moving money electronically from another bank account. It does not matter if that account is at the same bank or with a different financial institution. In addition to electronic transactions, you can visit a physical branch location and deposit cash. You can also wire money or mail a check. However, keep in mind that some of these options carry a fee, so make sure you ask before you decide how to make a deposit. A typical opening deposit is between $500 and $10,000.
Using Your New Account
You can put your account to work as soon as you have money on it. You can use bill pay immediately if the bank offers that online service. However, it will take some time before you receive your debit card and paper checks.
Money Market Accounts vs. Money Market Funds
Many people confuse money market funds (or money market mutual funds), with money market accounts, but they are two very different things.
A money market account, or money market deposit account, is an interest-earning savings account. On the contrary, a money market fund is a type of mutual fund that invests only in highly liquid instruments. Such is considered cash, cash equivalent securities, and high credit rating debt-based securities.
A money market deposit account is insured up to $250,000 in most cases per depositor through the Federal Deposit Insurance Corporation – FDIC (bank) or NCUA (credit union). A money market fund is not FDIC-insured and has no insurance coverage.
A money market account offers limited access to funds. There are limited to six monthly withdrawals and transfers. If you go beyond this number, you will be charged a fee. A money market fund, on the other hand, provides no timing restrictions.
With a money market account, you deposit funds at financial institutions. With a money market fund, you buy shares at a mutual fund company or investment broker.
Suggested Reading: Oprah’s Net Worth
Is a money market fund suitable for you?
Money market funds are appropriate for investors who have cash in an account opened with a stock brokerage firm, and they want to reinvest it. You can use a money market fund for holding money temporarily in a place that earns an average return before investing elsewhere. That means that it is not suitable as a long-term investment.
Money market fund is not suitable for you if you are:
- investing for growth
- investing for retirement
- investing for other long-term goals
- looking for an investment that might outpace inflation
Main Differences Between a Money Market Account and a Savings Account
While both accounts can keep your money secure, they are not the same thing. Even though a money market account is considered a type of savings account, it is different from a regular savings account. Let’s take a look at some key features that set these two accounts apart.
- Access you have to your funds
- Minimum deposit
The main difference between a savings account and a money market account is that a savings account typically does not have check-writing access. You can access your savings account through your checking account’s debit card using an ATM. It does not though have its own debit card.
Another difference is in the minimum deposit requirements. In most cases, money market accounts require a higher minimum deposit than savings accounts. Typically, regular savings accounts have no minimum balance or initial deposit requirement.
And finally, these two accounts earn different rates. A money market account often makes a higher interest rate than a standard savings account. Regular savings accounts also pay interest, but they can rarely beat high-yield money market accounts.
What They Have In Common
- Both MMDAs and savings accounts are FDIC-insured up to the maximum amount allowed by law
- Both accounts will enable you to make as many monthly deposits as you wish
- Both limit you to six transactions per statement cycle, per federal law
Which Is Suitable For Your Needs?
A savings account might be a better option if you do not need to access your money regularly. For example, when putting cash away for significant purchases or an emergency fund.
However, if you want to write checks on an account and have more access to it, then a money market account might be the right choice. Let’s say you are saving for a house and you need to write a few checks to cover some expenses, like a home inspection. A money market offers this option, so you do not have to transfer funds from another account.
With their liquidity and higher interest rates, money market accounts offer some great features. But before you replace your existing savings or checking account with an MMA, there is one crucial thing to keep in mind. A debit card and the ability to write checks with MMAs can be convenient. However, MMAs may not allow you to save money as efficiently as you would with a traditional savings account. Instead of saving and growing your money, you are tempted to make withdrawals and spend it. This will reduce your earnings, but might also impose fees if you make more transactions than allowed.
If you are realistic and know you will not be able to resist temptation, then perhaps you should consider keeping a savings account open rather than opening a money market account.
Suggested Reading: How to Build a Budget
Money Market Accounts Vs. Certificates of Deposit
Certificates of deposit, or CDs, are timed deposit accounts that have fixed interest rates and fixed dates of withdrawal, known as the maturity dates. When you open an account, you make a deposit between $500 and $10,000, which is held for three months to five years. During this term, you cannot make any withdrawals or additional deposits. The idea behind CDs is to lock away your money for a set amount of time while it earns interest. If you try to make a withdrawal during this term, you will incur hefty fees.
So, which one is better: a money market or a CD? Well, this depends on what you are looking for.
Know the Differences
For example, if you need a more accessible account, you should go with a money market account. It will allow you to deposit and withdraw funds with an ATM card, personal checks, or online.
If, on the other hand, you are prone to spending and not saving, and you need limited access to your money, then CDs are a better choice than MMAs. With CDs, after you make a deposit, you cannot move money in or out of the account before the maturity of the CD. (Well, you can, but you will pay hefty penalties.)
CDs typically have higher interest rates than money markets, but your money is locked up for several years. You have to wait for a long time to have access to that money. There are also short-term CDs, whose rates can be a bit lower than money market rates.
So basically, there is no one-size-fits-all solution, which means that the choice between CDs and MMAs may be more a matter of personal preference.
Money Market Account Glossary
The annual percentage yield is a money market rate, which is an expected rate of return for 365 days, including the benefit of compounded interest. The amount of earnings depends on the account’s interest rate and how many times they pay interest during the year.
Certificate of Deposit
A deposit account with a term of maturity and a fixed interest rate.
A deposit account that allows for numerous withdrawals and unlimited deposits. You can write checks or use a debit card, among other methods.
Compound interest is interest on interest. It is the interest you earn on both your original money and on the interest you keep accumulating. When calculating compound interest, the frequency of compounding makes a significant difference.
This is a readily available source of assets used to help in extraordinary situations, such as job loss, natural disaster, or a debilitating illness.
Individual Retirement Account (IRA):
A tax-advantaged savings or investment account used to keep funds for retirement savings.
Money a bank pays into an account over time.
This represents the minimum dollar amount that a depositor is required to maintain in an account on a daily or average monthly basis to receive some service benefit.
Money Market Account
A type of savings deposit account that often offers higher interest rates in return for a high minimum deposit and limits the number of transfers and withdrawals to six per month.
Money Market Fund
This is a type of mutual fund that invests mainly in cash and cash equivalents.
A fund that summarizes a pool of capital provided by investors and invested in a portfolio of securities.
A deposit account held at a bank or other financial institution that earns interest.
It stands for the level of fluctuation in the rate/price of financial instruments and assets.
Best Money Market Accounts of 2019
BMO Harris Bank
BMO Harris Bank’s money market account is famous for offering the highest possible rate of 2.45% and is best for ATM cards.
Harris Bank was founded in 1882. The company is headquartered in Chicago and has physical bank locations in 8 states: Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona, and Florida, operating more than 600 branches. It has over 44,000 ATMs.
If you want to open a money market account, a minimum deposit is $5,000. But after you open it, you do not have to maintain that $5,000-plus balance since it does not enforce a minimum balance after that. In case you decide to close the platinum money market account within 90 days of account opening, you will also be charged a $50 account closing fee.
It is important to note that the residents of those previously mentioned eight states (Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona, and Florida) are not eligible for the platinum money market account and the 2.45% APY is not available to them. They only qualify for a 0.25% to 1.25% rate, depending on the size of their balance.
TIAA Bank, formerly known as EverBank, offers competitive rates on banking products, but it is also famous for its commitment to community giving, donating almost 9 million dollars to charity.
TIAA Bank offers the best introductory rate on money market accounts (2.15% APY).
On top of this, TIAA Bank offers the “Yield Pledge,” guaranteeing that the yield will always be high, regardless of market fluctuations. After assessing competitor yields, they set their own, ensuring they stay among the top 5% of competitive accounts.
TIAA Bank’s money market account is IRA-eligible and has no monthly fee. Mobile check deposits are allowed, and the bank reimburses all ATM fees charged by other banks as long as they maintain a $5,000 account balance.
Unfortunately, the 2.15% APY is only an introductory rate. After 12 months, the rate drops according to your balance:
- For balances between $100,000 and $10 million, you get the highest yield of 2%
- For valances between $50,000 – $100,000, APY is 1.75%
- For balances between $10,000 and $25,000, you get 1.20% APY
- If your balance is below $10,000, you earn 1.10% APY
Additionally, TIAA Bank requires a $5,000 minimum deposit to open an account.
Capital One is an online banking subsidiary, well-known for its credit cards. In addition to the money market account, whose rate is consistently among the best, Capital One offers a savings account, checking account, savings IRA, and a range of CDs.
Along with a competitive rate of 2% APY for balances above $10,000, Capital One does not charge monthly fees, which is a massive advantage over other banks. However, the rate for balances under $10,000 is a bit lower, at 0.85%.
The bank is famous for offering a user-friendly, secure, and accessible banking app and innovative digital savings tools for money management. If you need answers to financial questions or you want to connect with other people while grabbing a cup of coffee, you can use Capital One’s latest venture, the Capital One Café.
Since Capital One is mainly an online bank, they do most transfers and deposits through a mobile app, which some people might find disadvantageous. The bank also does not offer a debit card or check-writing benefits.
Discover is well known as a credit card issuer. As an online bank that has a network of 60,000 no-fee ATMs, it offers one of the highest APY rates in the industry for money market accounts. In addition to money market accounts, it offers checking accounts, savings accounts, CDs, credit cards, personal loans student loans, and home equity loans.
As of July 2019, it offers 1.85% APY for balances under $100,000 and 1.90% APY for balances $100,000 and over. This is nearly twice as high as Ally, for example.
Discover Bank eliminated all fees from its accounts, including money market accounts. This means that there are no fees for minimum balance, online bill payment, excessive withdrawals, ATM withdrawals, etc. There are no fees associated with this account except for wiring money, ordering checks, and other specialized services.
Discover Bank has high customer satisfaction scores, thanks to customer service representatives available 24/7 who will answer all your queries efficiently and quickly. Its website is also easy to navigate, offering useful financial calculators, money management tips, and advice.
On the downside, you need a $2,500 minimum deposit to open a money market account with Discover.
Ally Financial Inc. is an online company that has over 8,000 employees and 6.5 million customers. In addition to checking accounts, savings accounts, CDs, credit cards, mortgages, auto loans, and investment bank products, Ally also offers money market accounts. They give you quick and easy access to your money with a debit card and personal checks.
According to the Consumer Reports’ annual survey, Ally is the highest-rated bank that offers money market accounts. It gets a perfect five out of five stars for overall satisfaction, opening a new account, products and fees, and transactions.
Ally does not charge any monthly maintenance fees, and all Allpoint ATMs in the country are free for Ally account holders. Besides that, Ally will reimburse your expenses up to $10 per statement cycle if you use another ATM.
There is no minimum deposit for opening a money market account, which is Ally’s other great feature.
However, Ally’s not so attractive APYs are something to consider. You get a rate of 0.90% for a daily balance of less than $25,000, and 1.00% for a daily balance above $25,000. In comparison to most brick-and-mortar banks, the rates are pretty high, but when compared to Discover’s 1.85% and 1.90%, it is less attractive.
Also, note that, if you overdraw from your account, you will be charged a $25 fee.
State Farm Bank
If you are looking for the bank that is best for ATM fee reimbursement perks, then you want State Farm Bank.
State Farm Bank is an online bank, opened in 1999, that does not have branch offices. Apart from checking, savings, and CDs, you can also open a money market with State Farm, with competitive rates (2.10% introductory rate).
When you open a money market, you get check-writing and debit card privileges. But State Farm’s best feature is its ATM refund policy. While other banks usually refund ATM fees from non-network banks up to a specific limit each month, State Farm Bank will refund as many non-network ATM fees as you need, with a direct deposit into your account during the statement cycle.
Opening a money market account requires an initial deposit of $1,000.
On the downside, a 2.10% rate is an introductory rate valid for the first 12 months. Also, if the average monthly balance goes below $500, you will be charged a minimum balance fee. The good news is that you can waive this fee if you have direct deposit.
UFB Direct, founded in 1999, is a division of Axos Bank. It is an online, branchless bank that, in addition to money market accounts, also offers checking and savings accounts. The bank is FDIC insured.
UFB Direct’s accounts consistently offer some of the highest rates. Its money market account is very competitive, with 2.25% APY on all balances of $5,000 and over, with interest compounded daily. Account-holders can write up to six checks per month and can also request a debit card. A daily limit for ATM withdrawals is $310.
To open a money market account, you need a minimum deposit of $5,000. The $10 monthly maintenance fee is not charged as long as you maintain a minimum balance. You can fund the account by mail, online, using the mobile check deposit feature, wire transfers, and direct deposit.
Keep in mind that balances under $25,000 only earn 0.5% APY.
SunTrust Bank, a bank founded in 1865 and headquartered in Atlanta, GA, has branches and ATMs in 11 states.
SunTrust’s Advantage Money Market Savings account is voted for best for high promotional APY for 12 months – 2.25% APY, with a deposit of $10,000. This competitive rate is available for the first 12 months. After that, standard rates apply:
- 0.03% APY for balances of $10,000
- 0.05% APY on balances between $25,000 and $50,000
- 0.1% APY on balances of $100,000 and above
The minimum deposit to open a money market account is $100. There is a $17 monthly maintenance fee that comes with this account, which can be waived by maintaining a $10,000 balance or setting up a $100 electronic transfer each month. Also, account holders are charged $15 for going above the six limited debit transactions.
CIT Bank is a national online-only bank that offers savings accounts, money market accounts, CDs, mortgages, and business banking. Since it does not have expenses related to brick-and-mortar banks, it can provide high-interest rates for their products.
The CIT Bank Money Market Account consistently has one of the most competitive interest rates offered to consumers. Currently, you can get 1.85% APY.
To open a money market account with CIT bank, you need to deposit $100. There is no monthly service fee. Monthly transactions are limited to 6 per statement cycle, so if you go above the limit, you will be charged fees.
You can use the bank’s mobile app to deposit checks remotely and make transfers.
As an online bank, there are no branches to visit, which may be inconvenient for some.
Sallie Mae Bank
Sallie Mae is best known for offering education loans, but it also provides a range of savings products for consumers. Its services offered include high-yield savings accounts, CDs, and money market accounts.
Sallie Mae’s rates are consistently among the highest in the country across all of its banking products. This is because it is an online bank with low overhead costs, allowing for more space to offer higher rates to its consumers. All Sallie Mae Bank savings products are FDIC-insured.
Sallie Mae offers a competitive interest rate of 2.15% APY. Also, it does not require a minimum balance or monthly maintenance fees to get the stated rate, which this bank is best for. Other perks of Sallie Mae’s money market account are:
- Easy online account management
- Free transfers and a maximum of six withdrawals per month
- Write checks from your account
Sallie Mae is an online-only bank and has no physical branches. This might be a problem for consumers who prefer to talk to a banker in person.
Suggested Reading: 8 Family Budget Travel Tips
Summing It Up
Have you found the best money market account with optimal rates, low fees, or other features? Feel free to share your stories in the comments below.