Is a Money Market Account Right for You?

Saving money? Kudos! Having and growing a savings account is one of the best financial practices you can do. But not all savings accounts are created equal. There are many types of savings accounts available to you: a traditional savings account, high-yield savings account, savings certificate — and money market account (MMA).

A money market account can help you grow your money with higher interest rates, so you can reach your savings goals faster and access your funds when you need. Let’s take a look at why the benefits of a money market account works for “Emma” in this fictional financial situation.

Meet Emma (Who has a Regular Savings Account)

Emma has been using her traditional savings account for building her nest egg for years. Then Emma was promoted at her job and received a high pay increase. Now she’s able to increase her savings significantly! Over lunch, she and her sister, Mia, were chatting about saving for future goals, like home renovations. Mia recommended that Emma move her funds into a money market account.

Why? What is a Money Market Account?

A money market account? Sounds intimidating! Mia responded by explaining that it’s simpler than you may think: a money market account offers a higher, more competitive interest rate than a traditional savings account and includes some checking features. This means over time, Emma can earn more interest than she is now to use toward her kitchen redesign.

Money Market Account Benefits: It Works for Mia

Mia was able to save for her vacation to Europe by depositing funds into her MMA. Anytime she had extra money, in addition to her regular monthly deposit, she was excited to drop it into her MMA and see it grow. She was also able to easily access funds so she can transfer money to a friend who say, booked the hotel. But because the account requires limited transactions, Mia wasn’t tempted to repeatedly take money out for unnecessary expenses, like shopping, that are unrelated to her trip goals.

It Works for Emma Too

During her own research, Emma wrote down a list of pros for why an MMA works for her:

  • Higher minimum deposit and balance requirements ✔ Now that she’s able to increase her savings contributions, maintaining a large minimum balance isn’t an issue. Building a larger account balance means earning more interest!
  • Monthly transaction limits ✔ Emma may need to access money as she starts her home renovation projects, but with limitations and the risk of a fee, she can keep her withdraws under control. For others, limited transactions are a disadvantage, but for Emma and Mia, this helps with their money management.
  • Security and insured by the National Credit Union Share Insurance Fund (NCUSIF) and the National Credit Union Administration (NCUA) ✔ Because who doesn’t want their money to be protected?
  • Comes with the ability to write checks and debit card privileges ✔ It’s nice to know she has the option to write checks or conveniently withdraw money if necessary.
  • Advised for large, infrequent expenses that are in the near future, rather than long-term ✔ Perfect. Emma would love to complete her kitchen renovations sooner than later. She’s even planning to use her MMA for her mortgage payments after her kitchen redesign to earn high interest.
  • Funds are easily accessible ✔ It doesn’t hurt to know that in case of an emergency, Emma can rely on some savings in a pinch.

Money Market Account Cons: It’s Not for Everyone

You may want to avoid an MMA if you:

  • Don’t have enough cash to initially deposit to open the account.
  • Can’t maintain a high minimum balance requirement in order to earn the best interest and avoid a monthly fee.
  • Have other financial goals to work toward that prevent you from meeting these MMA requirements.
  • Need to withdraw money more frequently or regularly (accessing money more than six times yields a penalty).
  • Would benefit more by having savings locked for a fixed duration so you don’t touch your funds — in which case a savings certificate may be better.
  • Need more flexibility with a high-interest checking account (for example).

Before Opening an MMA: Recommended To-Do’s

  • Check with your financial institution regarding fees. Some charge a fee regardless of the balance amount. Some may waive it if you make a regular monthly direct deposit, and some may require an annual account service fee.
  • Verify the number of transactions permitted. Institutions may limit you to six or even three.
  • Know that money market accounts are different from money market mutual funds. A money market fund is a type of mutual fund and investment in highly liquid, debt-based financial instruments.
  • Look into too-good-to-be-true interest rates. An introductory money market account rate could be promotional and temporary.

If you relate to Emma and Mia’s financial situation and goals, and are interested in opening a money market account, talk to one of our financial experts! We’ll walk you through everything you need to know about how an MMA may work for you, and what products and services are available if this type account doesn’t meet your financial needs.

The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.