Money market accounts: what are they, how do they work
A money market account is a type of savings account offered by credit unions and banks. Money market accounts are sometimes called money market deposit accounts or money market savings accounts.
Money market accounts are interest-bearing accounts, meaning that interest is paid on the account balance. Most money market accounts come with a debit card and checks, to make financial transactions easier and more convenient.
At Credit Union of Southern California (CU SoCal), we make it easy to open a money market account!
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgages, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.
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What are money market accounts?
A money market account is a type of savings account offered by credit unions and banks. Money market accounts are sometimes called money market deposit accounts or money market savings accounts. Money market interest rates tend to be higher that most savings account interest rates, which makes money markets a good choice if you have a large sum of money that you need access to.
How do money market accounts work?
Like other bank accounts, you’ll simply make deposits into your money market account as often as you’d like, using your credit union or bank’s deposit services. However, money market accounts may have some rules about withdrawals.
Prior to 2020, the Federal Reserve created a limit of six withdrawals from certain types of accounts. Although the requirement was removed, some credit unions and banks have kept the restrictions in place. Therefore, before you open a money market account, speak to a representative at the financial institution of your choice about the withdrawal rules and fees.
If a transaction limit is in place, then you may not be allowed to withdraw money or make payments more than six times a month from a money market account by check, debit card, draft, or electronic transfer.
Withdrawals or payments by ATM, in person, by mail, messenger, or telephone check (where payment is made by using your checking account number and bank routing number) typically do not count against the six-transaction limit.
Here are some other considerations:
Interest. Money market interest rates are tiered rates, so the more money you maintain in your account the higher tier interest rate you’ll earn.
Debit cards. Most credit unions and banks will provide you with a debit card for easy ATM and point-of-sale transactions.
Check-writing. Again, most financial institutions provide checks. CU SoCal provides free checks to money market account holders.
Advantages of money market accounts
Like with all types of financial accounts there are pros and cons. Which types of accounts you choose should be based on your unique financial situation and goals. Some of the advantages of money market accounts include:
- Easier access to funds. Your funds can be accessed using online banking features provided by your credit union or bank, as well as by ATM. You’ll also be offered checks for your money market account. While certificates of deposit (CDs) may provide higher interest rates than money markets, money in a CD is not accessible without a penalty, until the CD term is reached.
- Better interest rates. Money market interest rates are almost always higher than checking and savings accounts interest rates. This is how financial institutions reward consumers for the larger minimum balance requirement.
- FDIC / NCUA insured. All money market accounts are insured. If the account is held at a bank it is insured by the Federal Deposit Insurance Corporation (FDIC). A money market at a credit union is insured by the National Credit Union Administration (NCUA).
Both FDIC and NCUA insure money market accounts up to $250,000. The deposit insurance amount of $250,000 is provided per depositor, per FDIC-insured bank, per ownership category.
Disadvantages of money market accounts
While there are significant advantages of using money market accounts, there are also some disadvantages to consider.
- High minimum balance. A high minimum balance may be required, in order to open the account. Most financial institutions provide tiered-interest levels, meaning the more money you keep in your account the higher the interest rate you’ll earn. The money market account typical minimum balance is $2,500.
- Limited transactions. You cannot withdraw money or make payments more than six times a month from a money market account by check, debit card, draft, or electronic transfer.
- Fees. Some financial institutions may charge a monthly fee.
- Temptation to spend. Because the account comes with a debit card and checks, some people may find it tempting to withdraw from their money market, rather than check. A good rule of thumb is to withdraw money from the account that pays the lowest interest or no interest. Keeping a high balance in your money market will give you the biggest return on your money.
- Better saving options available. There are times when the stock market and other instruments and investment strategies may pay higher yields and dividends than traditional money market accounts. However, these other investments come with risk and only money market accounts are federally insured.
How MMAs compare to other accounts
There are numerous types of accounts that consumers can choose to meet their financial needs and goals. Here’s how money market accounts compare to some other common types of accounts:
Money market vs. checking accounts. A money market is designed with savings in mind, which a checking account is primarily for the payment and outflow of money. While a money market comes with check-writing privileges, if you will be writing a lot of checks and paying bills, its better to use a checking account for this purpose.
Money market vs. savings account. These accounts could have similar interest rates, so you should consider whether you are able to maintain the balance requirement of a money market and the transaction restrictions.
Money market vs. CDs. Certificates of deposit (CDs) require that the deposited funds sit in the account for a specific timeframe, in order to earn a specific interest rate, usually more than money market interest rates. CDs are considered a long-term earnings instrument. While money markets have some limitations on the number of transactions you can make each month, the money is always accessible without a penalty as long as you adhere to the transaction requirements.
Money market vs. money market funds (money market mutual funds). As we’ve discussed, a money market fund is a type of savings account. A money market fund is a type of fixed-income mutual fund that invests in short-term debt securities such as U.S. Treasury bills. Consumers can invest in these funds through brokerage firms. Money market funds are not FDIC insured.
Are money market accounts worth it?
Money market accounts are a great way to earn high dividends while keeping funds liquid. Financial transactions are an essential part of everyday life and having a money market savings account means you’ll earn more interest on your money while keeping it accessible.
CU SoCal’s
Money Market Savings Account will make the most of your deposits with higher tiered dividends while offering convenient access like a checking account.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Your Money Market Account Today!