A money market deposit account is a high-interest savings account that also bears some resemblance to a checking account. If you have enough cash to open it, it can be a useful savings tool that allows you to restrict access to your funds while still generating more interest than a traditional savings account.
Money market deposit accounts combine some of the best features of both checking and savings accounts, but each type of account has its own pros and cons. When you get certain features when opening these types of accounts, you may have to opt-out of some others. Learn more about how money market deposit accounts work and when you might need them in Woburn, MA.
What is a money market deposit account?
A money market deposit account is essentially a savings account that has some of the properties of a checking account. Typically, you receive checks or a debit card, and you can make several transactions each month, but you will not have complete freedom, as in the case with a typical checking account. There are also several key differences between money market deposit accounts and traditional savings accounts, including higher minimum deposit requirements and better interest rates on money market deposit accounts.
Important: With a money market deposit account, you will generally be able to write a limited number of checks, as opposed to a traditional checking account.
How does a money market deposit account work?
Many banks and credit unions offer money market deposit account options that can be opened in person or online. To open such an account, you usually need a large minimum deposit, often starting at $10,000. Most banks will charge you a commission if your account balance falls below this amount. If your bank provides checks for your money market deposit account, it will provide you with them along with other account documents detailing conditions such as the maximum number of transactions per month.
Your Account Terms will also show your Annual Percentage Return (APR), which is the rate at which cumulative interest will be accrued on your ARRP during the year. So, for example, if you put $10,000 on the money market deposit account with a 0.5% GPA on January 1 and don’t add more money, you will have $10,050 by the end of the year.
While you are banking with an FDIC (Federal Deposit Insurance Corporation) or NCUSIF (National Unity Unit Insurance) insured institution, your money market deposit account combined with any other bank account balances in the same institution will be insured up to a total of $250,000 for a single owner’s account or $500,000 for a joint account.
Pros and cons of money market deposit accounts
- Insured up to certain FDIC or NCUIF limits;
- Provides higher interest rates than some traditional savings accounts;
- Money is relatively affordable.
- Limited transactions per month;
- Introductory interest rates may be higher than the actual GPA;
- May not be insured at some institutions.
Explanation of pros
Money market deposit accounts offer some key benefits that make them an attractive store of savings for people looking to start saving their money.
- Security: Like other federally insured checking and savings accounts, your money is protected up to the federal limit;
- Interest: Generally, you get better interest rates on the money market deposit account than on a traditional savings account. Higher account balances also help you earn more interest, and income is usually somewhere between income from a certificate of deposit (DC) and a savings account;
- Access: Most accounts allow you to write checks or withdraw cash, and some offer a debit card that you can use to make purchases. This easy access, coupled with a competitive interest rate, is what has traditionally made the money market deposit account unique. In recent years, bonus checking accounts, interest checking accounts and Internet banks have become increasingly popular, which offer the same benefits, but sometimes you can get more benefit from a money market deposit account.
Explanation of cons
Money market deposit accounts have some nice features, but you should be aware of a few shortcomings before opening an account.
- Large minimum balance: A money market deposit account can only be accessed if you can deposit at least $2,500 on it, and often much more. If your account balance drops below the minimum, expect monthly commissions that eat up your income;
- Transaction limits: You have access to cash on the money market deposit account, but you will not be able to make payments with your checkbook or debit card more than six times (some banks even less) a month by law. You can withdraw cash as often as you like, but these accounts are not as flexible as your checking account when it comes to day-to-day use;
- Introductory interest rates: If a rate sounds too good to be true, check it again to make sure it is a constant interest rate and not an advertising rate that will disappear after a month;
- Insurance to ensure safety: make sure you are using the money market deposit account from the bank or credit union that will insure your funds. Ask your bank or credit union to check if your funds are insured and keep your deposit balance below the maximum allowed limits.
Warning: Do not confuse these accounts with money market mutual funds, which play a role in investment planning but are not the same financial instrument. Money market mutual funds are not insured by the federal government.
Best use cases for money market deposit accounts
A money market deposit account is a great place to deposit money that you may need in the relatively near future. They allow you to make a small profit while keeping funds safe and affordable. They are especially useful for large and infrequent expenses such as:
- funds for unforeseen expenses;
- budget planning for quarterly tax payments;
A money market escrow account is not the best place to store funds for recurring expenses due to the limits on the number of check payments you can make. However, in order to earn a little more interest, you could keep the funds in a money market deposit account for some of your biggest monthly expenses, such as a mortgage.
If you don’t need immediate access to your cash, you can look into higher-yielding deposit accounts. You can even use the deposit account series known as the deposit account ladder to make decent profits while keeping some of your money liquid and minimizing early withdrawal penalties. If you are investing for the long term, talk to a financial planner about which combination of investments can best help you achieve your goals.
- A money market deposit account is a type of bank account that combines some of the advantages of a checking and savings account;
- They usually provide a higher interest rate than traditional checking and savings accounts, while providing greater access to your funds than a certificate of deposit;
- These bills are a good tool for contingency or other expenses that you do not need to pay on a regular basis;
- Money held at an FDIC or NCUIF insured institution is protected up to federal limits;
- Money market deposit accounts should not be confused with money market mutual funds, which are a type of investment vehicle and are not federally insured.
Best money market rates & accounts
- Affinity Plus Federal Credit Union (APY 1.00%; Minimum Deposit Amount $0)
- National Cooperative Bank (APY 0.60%; Minimum Deposit Amount $100)
- Axos Bank (APY 0.60%; Minimum Deposit Amount $1,000)
- Prime Alliance Bank (APY 0.60%; Minimum Deposit Amount $10,000)
- CFG Bank (APY 0.56%; Minimum Deposit Amount $1,000)
- Latino Community Credit Union (APY 0.50%; Minimum Deposit Amount $500)
- Chevron Federal Credit Union (APY 0.50%; Minimum Deposit Amount $2,500)
- Spectrum Credit Union (APY 0.50%; Minimum Deposit Amount $2,500)
- BankDirect (APY 0.50%; Minimum Deposit Amount $10,000)
- Ally Bank (APY 0.50%; Minimum Deposit Amount $0)