For financial novices, the variety of products designed to help you save money can often seem overwhelming. From mutual funds and certificates of deposit to basic checking and savings accounts, there are seemingly a million and one ways to save your pennies. Here, we’re explaining everything you need to know about a common savings product, the money market account. Learn how money market accounts work and the key benefits you should consider.
How Does a Money Market Account Work?
A money market account is an FDIC-insured cross between a checking account and savings account at a bank or credit union. Owners of a money market account typically benefit from higher interest rates than savings accounts as well as checks or a debit card to complete a limited number of transactions each month. Money market accounts are designed for people who want to earn more interest than they would with a traditional savings account, and are typically best for achieving short-term financial goals, such as a vacation, the down payment for a car, or for a rainy day or emergency fund. They are not intended for long-term purposes like retirement.
Is a Money Market Account the Same as a Money Market Mutual Fund?
A money market mutual fund is slightly different, offering you the opportunity to invest in safer short-term vehicles with the potential for more growth, but without the FDIC protection of a money market account. Be careful not to confuse a money market account with a money market mutual fund. While the former is a type of deposit account, the latter is a mutual fund that invests in highly liquid short-term assets.
What Are the Benefits and Drawbacks of a Money Market Account?
A good option for short-term savings goals, the main reason to open a money market account is to have a higher interest rate compared with a traditional savings or checking account, while also having the ability to write a few checks. If you have a savings account that you rarely access (such as an emergency fund), you should consider putting your money into a money market account to accelerate your interest growth. Your funds won’t accumulate as quickly as if they were invested, but there is no risk of loss in a money market account like there is in the stock market.
If you do decide that a money market account best fits your needs, look for one with a high interest rate, no monthly fee and reasonable (for you) minimum deposit or balance requirements.
Some, though not all, money market accounts limit transfers or electronic payments from the account. The federal regulations limiting transactions were lifted in April of 2020, but some financial institutions still impose restrictions. Many money market accounts require a deposit to open the account and have minimum balance requirements, and some require you to pay fees. The interest rates on money market accounts are variable and rise or fall with inflation, so that primary benefit of a higher interest rate than savings account isn’t always the case – be sure to compare money market account and saving account rates to determine what is the best for your situation.
We Can Help
If you have questions about the best way to grow your wealth and meet your financial obligations, a Farm Bureau financial advisor can help you determine the next steps to prepare for the future you are dreaming of