What Is a Money Market Account and How to Get the Best Rates?

With

Interest rates rising

With a potential recession in the future, it may be time to prioritise saving.

A money market account can be a good option if you are looking for ways to keep your cash safe from market turmoil, and make it available for emergencies or paying bills. These deposit accounts are risk-free and have the potential to earn.

Savings account

The convenience of using a

Checking your account

.

Michelle Riiska, a financial planner at eMoney Advisor (a wealth management platform owned and operated by Fidelity), says that a money market account'may offer a good solution to those who want the higher rate of savings but still have the ability to write checks. While some banks may require a minimum balance to be eligible for the higher interest rate, others, especially those that are online-only, don't.

This comparison shows how money market accounts compare with other savings products. It also shows what features you should look for when shopping for one.

How to get the highest savings and money market rates

What is a money-market account?

A money market account can be described as an interest-bearing bank account. It functions and looks very much like a savings or checking account. However, there are a few key features that make it a checking account. Ken Tumin is a senior industry analyst at LendingTree, and also the founder of DepositAccounts.com. He says, "It's up the banks sometimes, how they define that,"

A money market account will typically have one of the following features:

Higher interest rates than checking accounts at the same bank

FDIC insurance

Check-writing capabilities

ATM or debit card

Minimum balance required

Monthly withdrawal limit

Monthly maintenance fees or service fees

This is how a money-market account compares with other types of bank accounts.

Savings accounts vs. money market accounts

Savings accounts are more accessible than money market accounts. You will often find them with a checkbook and/or a debit card. This allows you to pay others, or withdraw money directly from your account. However, each bank has its own rules about how often you can withdraw or transfer money.

The Federal Reserve used six monthly limits on withdrawals and transfers of savings products, such as money market accounts, in order to restrict withdrawals.

This rule was scrapped by the Fed

During the pandemic, banks can now decide whether to limit withdrawals. Banks often set a monthly limit and charge fees for any additional withdrawals or transfers.

Interest rates are determined by money market accounts, so-called "money market" accounts, and so on.

High-yield savings accounts

Your balance will be charged at the same rate as a checking account, which is to say that you'll pay less than a checking account. According to DepositAccounts.com data, online banks offered top rates of 3% on savings and money market accounts as of October, while traditional checking accounts earned less that 1%.

Money market accounts vs. Checking accounts

A checking account is the best place to store your money aside from your shoebox under your mattress. A checking account is used by most people for their day-to-day financial needs, such as paying bills, writing checks and withdrawing cash. Checking accounts aren't the best place to save large amounts of money over the long-term due to the low interest rates they usually have, according Brian Walsh, an online financial planner and lender SoFi.

Like savings accounts, money market accounts are designed to protect your money and grow it for longer periods of time than just a few months. Banks will pay interest on the balance to encourage you to put your money there.

Walsh suggests that a combination of a savings or money-market account and a checking account is the best way to manage your cash flow.

Money market accounts vs. Cds

Although still a savings product

Certificates of Deposit

CDs (or CDs) have a distinct advantage in terms of accessibility. Although a CD might offer a higher rate of interest than a savings account or money market account it is still possible to earn that return by locking your money up for a set period. Your interest rate will be higher if you keep your money untapped for longer periods of time.

Money market accounts allow you to deposit and withdraw cash with relative ease.

Money market accounts vs. money market funds

Money market accounts can be described as deposit accounts. Money market funds, however, are investment products. Although a money market fund has a lower risk than a deposit account, it is still not as secure as if you invest in it.

FDIC (Federal Deposit Insurance Corporation) insures money, savings and checking accounts as well as CDs up to $250,000 per account holder per ownership category, for each bank. This means that you won't lose any of your money if the bank goes out of business. While it is unlikely, it gives you peace-of-mind you don't need to pay more for.

Money market mutual funds invest your cash in U.S. Treasury securities at low risk. These funds are used primarily to temporarily hold cash prior to making an investment. Money market mutual funds are actively managed and a fee is required to receive your returns.

Are money market rates expected to rise in 2023?

In an attempt to reduce inflation, the Fed has increased interest rates multiple times this year. The federal-funds interest rate changes, and so does the rate on money markets accounts and other deposit accounts. Banks reward savers who help them keep their coffers full.

Tumin believes that the Fed will raise rates to 4% or higher due to persistent inflation in the U.S. as well as around the globe. Tumin states that online savings accounts and online money markets accounts tend to track within this range. It might take some time, and there may be a little delay, but they will often trend towards this rate. He adds that brick-and-mortar and legacy banks offer lower rates overall, and respond slower to Fed adjustments.

Learn about the terms of money market accounts

These are the top features you should know and compare when shopping for a money-market account.

Annual percentage yield or APY

This is the annual rate of return for your balance. Banks can compound interest monthly or daily. However,

APY

The interest rate you earn will not be the sticker-APY that you see when you open an account. This is because the balance changes frequently throughout the year.

Deposit

Some banks allow you to deposit cash via ATMs into your money market account, while others accept electronic transfers from other accounts.

Fees

Despite the fact that monthly maintenance fees or service fees are less common due to online banking, many legacy banks still charge them. You can sometimes avoid these fees by keeping a certain amount or opting out from paper statements.

Limit on withdrawal

The withdrawal limits are the number of times you can withdraw cash from your account or transfer money electronically. This information must be disclosed by banks upon account opening. A bank cannot impose a monthly withdrawal limit on savings or money-market accounts that is less than six per month.

Minimum deposit requirement

A minimum deposit requirement for an account means that you must fund it with a specific amount of money to open it. You can shop around for the minimum deposit that suits your needs.

Minimum balance required

The bank decides how much money you should have in your account at all times to avoid account closure or fees. Banks may not have a minimum balance requirement but will only pay interest if your account reaches a certain dollar amount. Tumin explains that these are known as rate or balance levels. Higher balances are'rewarded with a better rate'.

FDIC insurance

Money market accounts can be automatically insured up to $250,000 per account holder per ownership category per bank.

This calculator

You can, for example, have $250,000 in an individual savings account and $250,000 each in a joint savings account. This will make you fully insured. You can use the FDIC to insure more than 4,700 financial institutions.

This tool

To check the membership status of a bank.

ATM or debit card

You can access your money market account through ATM withdrawals. This requires an ATM card. Some banks will give you a debit credit card that you can use to withdraw cash from an ATM, shop at restaurants or buy items at other merchants. You should check with the bank to see if there are any fees for using these cards.

Write down your thoughts

Money market accounts allow you to write checks just like a checking account. Keep in mind that cashed checks may affect your monthly withdrawal limit.

How to use money markets accounts in your portfolio

A money market account can be used to manage your money, whether you are saving for an emergency fund or investing in large purchases.

"Cash is cash if we return to the basics of investment principles. It is not meant to be part of your portfolio that grows," Autumn Lax, a Drucker Wealth financial planner based in Austin, Texas, said.

Some banks offer only savings or money market accounts. You might be unsure which account type to open if you don't necessarily need check writing or a debit cards. Instead, narrow down your options by choosing a few banks or credit unions that you trust and then compare what they offer.

Lax states that the most important decision is to determine how much cash you need, and not where it is held.