What is a Money Market Account?

If you’ve been researching what kind of bank account is right for you, you’ve probably noticed that most financial institutions, including Patelco Credit Union, offer money market accounts. This article explains how money market accounts work, and how to choose one that can help you meet your financial goals.

Money market accounts explained

A money market account (MMA) is a type of deposit account offered by credit unions and banks. Money market accounts are insured by the National Credit Union Association for up to $250,000 (or the FDIC, if you open the account at a bank), so they’re a low-risk way to have access to your cash while earning interest.

How does a money market account work?

A money market account works like other bank accounts. Just like a savings account, you can make a deposit and earn interest on your money. You can also access your money whenever you need it, using an ATM card or checks.
 
Before April 2020, financial institutions were required to limit withdrawals or transfers from savings and money market accounts to six per statement cycle (usually per month), but that requirement was lifted during the coronavirus pandemic. (Some banks and credit unions may choose to continue limiting the number of these withdrawals.)

What are the benefits of a money market account?

These are some of the benefits you’ll enjoy with a money market account:

• Can regularly add money to the account.
• Higher interest rates compared to regular savings accounts. Some accounts even have tiered interest rates, so you can earn more based on how much is in your account.
• Easy access to your money. You can use ATMs and online banking tools, and pay for things by check, debit card, or electronic transfer.
• Money market accounts don’t lose money (unless you’re paying high fees). But a money market fund — a different type of account that isn’t insured— can.
• You may be able to link your MMA to your checking account for overdraft protection in some cases.

Diversify, diversify

A money market account can be a great option if you’re saving for a large purchase, but it doesn’t have the potential to grow as quickly as an investment account. So consider using both, to address your short- and long-term needs.

What are some drawbacks to a money market account?

There can be some drawbacks to money market accounts, so it’s important to do your research and shop around.

• You may need to pay a monthly fee. Patelco’s Money Market Plus and Money Market Select do not have minimum balance requirements.)
• You may need to maintain a minimum balance. If your balance dips below that minimum, you may pay a fee. (Patelco’s Money Market Plus and Money Market Select accounts accounts don’t require a minimum balance.)
• You may be limited to writing a certain number of checks per month.
• You may be limited to a certain number of transactions per month or per year.

Who should open a money market account?

Money market accounts aren’t really meant to cover your everyday expenses like rent, groceries, or gym fees. Instead, the best MMAs are an ideal way to save (and earn!) money in the short term. Stash your cash in a money market account for an emergency fund, a vacation, or a big purchase — new car, anyone?

For longer-term savings or higher yields, speak to a financial advisor to find the right investment solution for your goals. And if you can’t meet your financial institution’s minimum balance requirements, shop around or consider a regular checking or savings account.

Compare money market accounts vs. savings vs. certificates

Before opening a money market account, it’s important to do your research to find the right account for your financial goals.

Money market accounts, savings accounts, and certificates are all NCUA or FDIC insured.

Some money market accounts let you write checks and withdraw money from an ATM. Credit unions usually offer a higher Annual Percentage Yield (APY) on money market accounts, but that’s not always the case — and if you can’t meet the minimum balance requirement each month, you might be paying fees.

Sure, savings accounts generally earn less interest than money market accounts, but they usually come with fewer restrictions. Opening deposit and minimum balance requirements may be less, for instance — but if you can meet account requirements, always opt for the option with higher yields and less costs to you.

Share certificates (or certificates of deposit, as they are known at banks) are a kind of savings account that comes with a fixed interest rate. Their APY is usually somewhat higher than that of a savings account or money market account. But share certificates come with strings attached: You can’t touch your money until the certificate matures. If you do make a withdrawal before the end of the term, you’ll be charged penalty fees.