Tips for Maximizing Money Market Account Returns
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Interest rates are rising, and putting money in money market accounts can help you achieve your financial goals. Whether you are saving for an emergency fund or the downpayment on your home, maximizing the returns on your money market account could be a substantial amount of money for you.
While money market accounts have features similar to those of savings, they offer a higher interest rate in most cases. It also has check writing abilities and higher liquidity. The account is a combination of a savings and a checking account.
This guide looks at how to make your money work through a money market account.
In this article
What is a money market account?
A money market account (MMA) is a deposit account offered by financial institutions, such as banks and credit unions, that combines features of both a traditional savings account and a checking account. Money market accounts are designed to balance safety, liquidity, and yield. They are typically considered a low-risk investment option. They are often used for short-term savings goals, emergency funds, or as a place to park cash temporarily while earning some interest.
Features of money market account
Interest Earnings
Money market accounts generally offer higher interest rates compared to standard savings accounts. However, these rates are usually lower than riskier investments like stocks or bonds.
Liquidity
Money market accounts provide a high level of liquidity, allowing you to easily access your funds through withdrawals, checks, or electronic transfers. Some accounts might have limitations on monthly transactions due to federal regulations.
Safety
Money market accounts are considered safe investments due to their backing by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. This means that up to a certain limit (typically $250,000 per depositor per institution), your funds are insured against the financial institution's failure.
Minimum Balance Requirements
Some money market accounts might require a minimum balance to open and maintain the account. Different institutions have varying balance requirements.
Tiered Interest Rates
Many money market accounts offer tiered interest rates based on the account balance. Higher balances can lead to higher interest rates, incentivizing you to keep more money in the account.
Check Writing
Some money market accounts allow you to write checks from the account, providing convenience for making payments or accessing funds.
Limited Risk
Money market accounts invest in short-term, low-risk securities such as Treasury bills, certificates of deposit, and commercial paper. While they are not entirely risk-free, they are generally considered safer than many other investments.
Related: Best Money Market Accounts
The higher your balance, the more you’ll earn.
- 4.55% APY on balances of $5,000 or more
- 0.25% APY with a balance of less than $5,000
- Get started with as little as $100
How to choose a money market account?
Choosing a money market account involves considering various factors to ensure that the account meets your financial goals, preferences, and needs. Here's a step-by-step guide to help you make an informed decision:
- Determine the purpose of the account. Your purpose could be building an emergency fund, short-term savings, etc. Assess your liquidity needs and how frequently you'll need to access funds.
- Define your goals and needs. Compare interest rates, fees, and account terms. Online banks often offer higher interest rates due to lower overhead costs.
- Research financial institutions. Compare the annual percentage yield (APY) across different accounts. Remember that higher interest rates can lead to better returns, but consider other factors too. Research the institution's reputation, customer reviews, and customer service quality. Check for monthly maintenance fees, minimum balance requirements, and transaction fees. Choose an account with minimal fees that aligns with your usage patterns.
- Fees and charges. Consider the ease of accessing your funds, such as online transfers, ATM withdrawals, or check writing. Evaluate any limitations on the number of monthly transactions.
- Account access. Determine if you're comfortable maintaining the minimum balance to avoid fees and maximize the account's benefits.
- Minimum balance requirements. Confirm that the financial institution is FDIC-insured (for banks) or NCUA-insured (for credit unions). Ensure your deposits are covered up to the applicable limit (usually $250,000 per depositor per institution).
- Customer service and reputation. Consider whether you're comfortable managing your account online or prefer a physical branch presence. Online banks often offer higher interest rates and more competitive terms.
- Online vs. traditional institutions. Some money market accounts offer perks like overdraft protection, ATM fee reimbursements, or linked accounts for easier fund transfers.
- Additional features. Review the ease of opening an account and the required documentation. Ensure the process aligns with your preferences and needs.
- Account application process. Don't settle for the first option you come across. Compare at least three to four institutions to make an informed decision. Carefully read the account's terms and conditions, including the fine print. Understand any potential changes to interest rates or fees over time.
- Ask questions. Choose an account that aligns with your financial goals, risk tolerance, and personal preferences.
Remember that choosing a money market account is an important decision, and it's worth doing thorough research. While interest rates are important, consider the account's features, fees, and convenience factors to make the best choice for your financial situation.
Money market account vs. Money market fund
It's important to note that money market accounts differ from money market funds, which are investment funds that pool money from multiple investors to invest in short-term securities. Money market accounts are bank products, while investment companies typically offer money market funds.
Tips for maximizing the money market account returns
Maximizing returns from a money market account involves balancing safety, liquidity, and yield. Money market accounts are known for their stability and ease of access, making them popular for individuals looking for a relatively low-risk place to park their cash. Here are some tips to help you maximize your money market account returns:
Shop around for the best rates
Interest rates on money market accounts can vary significantly between financial institutions. Research and compare different banks or credit unions to find the best rates. Online banks often offer higher rates due to lower overhead costs.
Consider online banks
typically offer higher interest rates on money market accounts than traditional brick-and-mortar banks. Their lower operational costs allow them to pass on more interest to customers.
Maintain a high balance
Money market accounts often come with tiered interest rates based on the account balance. The higher your balance, the higher the potential interest rate. However, make sure to weigh this against your liquidity needs.
Understand fees
Some money market accounts have monthly maintenance fees or minimum balance requirements. Make sure you understand these terms and choose an account that aligns with your financial situation and usage patterns.
Consider introductory rates
Some financial institutions offer new money market account holders promotional or introductory interest rates. While these rates may be higher initially, they can change after a certain period. Be aware of these terms before opening an account. However, you can still make the most of the introductory rates, but choosing the right bank is crucial.
Automate savings
Set up automatic transfers to your money market account from your checking account. This helps you consistently contribute to your account and use compounding interest.
Monitor rate changes
Interest rates can change over time due to fluctuations in the market and the central bank's policies. Money market accounts have variable interest rates. Stay informed about any changes, and consider moving your funds if you find better rates elsewhere.
Reinvest earnings
Many money market accounts offer the option to reinvest your interest earnings automatically. This can help accelerate the growth of your account over time. If you do not need the money, reinvest the interest as long as possible.
Diversify your savings
While money market accounts offer stability, consider diversifying your savings across different types of accounts and investments to balance risk and potential returns.
Regularly review your strategy
Your financial goals and circumstances can change over time. Review your money market account's performance and assess whether it aligns with your needs and objectives.
The higher your balance, the more you’ll earn.
- 4.55% APY on balances of $5,000 or more
- 0.25% APY with a balance of less than $5,000
- Get started with as little as $100
Best money market accounts
Synchrony Bank
APY: 2.25%
has no minimum deposit requirement, no fees, and no minimum monthly balance. It pays an APY of 2.25% and offers a check-writing feature. As per the website, its APY of 2.25% is significantly higher than the national average of 0.81% APY. However, all tiers have the same APY and will not be rewarded if you make a higher deposit.
Discover
APY: 4.20%
With Discover, you enjoy an APY as high as 4.20% on balances below $100,000 and 4.25% on balances over $100,000. The more you deposit, the more you earn. Discover has no fees, monthly minimum balance, or minimum deposit requirement. You also get access to over 60,000 ATMs nationwide. Discover offers one of the best rates in the industry right now.
Ally Bank
APY: 4.40%
, a leading financial institution, is a smart choice if you seek high liquidity. You earn an APY as high as 4.40% and do not need a minimum initial deposit to open an account. It gives you free access to more than 43,000 ATMs across the nation. There is no monthly balance maintenance of fees. Ally Bank offers complete banking solutions and has no overdraft item fees.
EverBank
APY: 4.75%
EverBank offers the highest APY on the money market account at 4.75%. The bank has a “Yield Pledge,” which guarantees that the interest rate will always be in the top 5 percent. It has no minimum monthly balance requirements or a minimum deposit to open an account. It also does not charge fees and reimburses up to $15 in non-network ATMs, while you can access the in-network ATMs for free.
FAQs
Is it safe to put all the money in a money market account?
Money Market accounts are insured by the FDIC and an amount up to $250,000 is safe. However, it helps to do your research and compare the interest rates across different financial products before you put all the money into a money market account.
What is the difference between a money market account and a high-yield savings account?
Money market accounts are very similar to high-yield savings account but many do offer interest rates higher than that offered on a savings account. Apart from that, money market accounts allow you to write checks, come with a debit card and allow you to pay bills which a savings account doesn't.
Is my investment in a money market account 100% safe?
No investment is 100% safe. Money market accounts carry interest rate risk, liquidity risk and credit risk. But they are relatively safe as compared to other products.
Is the money market rate fixed?
Money market rate is not fixed, it is variable and the APY can change with a change in the market situation.
The higher your balance, the more you’ll earn.
- 4.55% APY on balances of $5,000 or more
- 0.25% APY with a balance of less than $5,000
- Get started with as little as $100
The bottom line
A money market account is a great place to park your savings, but it is important to research and choose an account that pays the highest interest rate. It is advisable to remain invested for three to five years if you are saving for a goal. It offers high liquidity with check-writing features and a high interest rate.
Remember that money market accounts are generally considered low-risk investments, so the potential for high returns might be limited compared to riskier investments. Always assess your financial goals, risk tolerance, and liquidity needs when deciding where to park your money. Choosing the right money market account will help maximize your returns, and it always helps to keep your money in the account unless you need to withdraw it. The longer it says in the account, the higher your earnings.
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