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. Here’s what you need to know about using a money market account instead of a savings account.
Pros of a Money Market Account
- Higher interest rates than savings accounts
- FDIC protection
- Easy access to cash through debit card or checks
Cons of a Money Market Account
- Limited to six transfers or electronic payments per month (unlimited deposits)
- Many accounts require a minimum deposit and have account balances
- Some accounts require you to pay fees
The main attraction of a money market account is access to a higher interest rate. For example, according to Bankrate, bank interest rates in early 2019 ranged from 0.09% to 1.90%. Money market accounts during that time ranged from 0.15% to 2.01%. When interest rates are higher overall, the difference in interest rates will be even wider. This is because money market accounts, unlike savings accounts, can be invested in certificates of deposit (CDs), government securities and commercial paper.
How Can I Benefit From a Money Market Account?
A money market can be a good option for short-term savings goals. 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 a reasonable (for you) minimum deposit or balance.
Money Market Mutual Funds
A money market mutual fund is slightly different, offering you the opportunity to invest in safe 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.
If you have questions about the best way to grow your wealth and meet your financial obligations, a Farm Bureau financial advisor can help determine the best next steps and can help you prepare for the future you are dreaming of.