Money market accounts are useful bank accounts that combine some of the best aspects of checking and savings accounts. If you are wondering about how they work, here are answers to some of the most common questions.
What is a money market account?
A money market account is a type of bank account that combines many of the features of checking and savings accounts.
Like a savings account, money market accounts pay interest on the account’s balance. In some cases, the interest rate will increase as your balance increases.
Like checking accounts, money market accounts can come with checkbooks and debit cards to give you easy access to your money.
Who offers money market accounts?
Many banks offer money market accounts, though not every bank has one.
Credit unions also offer money market accounts.
Are money market accounts FDIC-insured?
Yes, money market accounts offered by banks receive the same level of FDIC insurance as other types of bank accounts including savings accounts and checking accounts.
Money market accounts covered by FDIC insurance are protected up to $250,000 per account type, per depositor.
Can you lose your money in a money market account?
In most cases, you can’t lose money in a money market account.
So long as you have less than $250,000 in your covered accounts, the money in your money market account is insured. If the bank is unable to return the funds you’ve deposited, the FDIC will reimburse you for the amount lost.
When can you withdraw from a money market account?
You can withdraw money from your money market account whenever you’d like. However, your bank may place limits on how many withdrawals you can make in a single statement period. Additional withdrawals typically incur a fee.
Certain transactions, like ATM withdrawals or in-person withdrawals at the bank usually don’t count toward this limit, while debit card purchases, online transfers and check transactions do.
Can you close a money market account anytime?
Yes, you can close a money market account at any time, just like you can close a checking account or savings account whenever you’d like. However, keep in mind that some banks will charge an account closure fee, especially if you close the account shortly after opening it.
What are the disadvantages of a money market account?
Money market accounts combine the features of checking and savings accounts, but they place additional restrictions on your money, which limits their usefulness as checking account replacements. For example, you usually can only make a limited number of check or online transactions per statement.
Money market accounts also tend to have higher minimum balances and/or fees than checking or savings accounts. For example, Bank of America’s money market account charges a $12 monthly fee while its checking account charges $4.95.
Do money market accounts have minimum balances?
Yes, many money market accounts have minimum balance requirements, either to open the account, earn interest or avoid fees. With some banks, the minimum balance requirements are higher for a money market account than a savings or checking account.
For example, CIT Bank’s money market account requires a $100 minimum deposit to open.
What’s the difference between a money market account and a regular savings account?
Money market accounts combine aspects of savings accounts and checking accounts. The primary difference between a money market account and a savings account is how you can access your money.
With a money market account, you’ll typically get a checkbook and/or debit card. You can write checks against the account’s balance or use the debit card to make purchases and withdraw money from ATMs.
Savings accounts typically don’t offer checkbooks and debit cards, meaning you have to withdraw money at a branch of your bank, or transfer funds to a checking account to access them.
What’s the difference between a money market account and a CD?
A CD is a type of time deposit account. When you open a CD, you select a term for the account and must keep your money in the account for the full term. If you make an early withdrawal, you have to pay a penalty.
Money market accounts are far more flexible, allowing deposits and withdrawals at any time, though with some limitations on the number of withdrawals you can make in a single statement period.
What’s the difference between a money market and a checking account?
The primary difference between a money market account and a checking account is the restrictions on how you can access your money.
Both accounts come with debit cards and checkbooks that you can easily use to access your account’s balance.
Checking accounts typically place no limit on the number of transactions you can make in a single statement period. With a money market account, you’re typically limited to six withdrawals and transfers per statement, though some transactions, like in-person withdrawals, don’t count toward this limit.
What is a money market account’s interest rate?
The interest rate offered by a money market account will vary from bank to bank. In some cases, the rate will be higher than the bank’s savings account’s rates and in other cases, it will be lower.
Many banks will offer higher rates on larger balances as an incentive for people to keep large amounts in their accounts.
If you’re looking to earn a good interest rate, check out our list of the best money market account interest rates.
Does a money market account have a monthly service charge?
Many banks charge a monthly fee for their money market accounts, though there are also lots of banks that have no fees. For example, Ally Bank has no minimum balance or monthly fee for its money market account.
Usually, if a bank charges a monthly fee for its money market account, there are ways to avoid the fee. An example is Bank of America which charges a $12 monthly fee. You can avoid the fee by maintaining a $2,500 minimum balance, linking your account to a Bank of America interest checking account or signing up for Bank of America’s Preferred Rewards program.
What should I use money market accounts for?
Money market accounts are most useful when you have a large amount of money, but want to have quick and easy access to it.
If you keep your money in a checking account, you won’t earn a high rate of interest, but placing it in a savings account makes it harder to quickly access. With a money market account, you can easily use a check or debit card to access your money while earning a reasonable rate of interest on the account’s balance.
Do money market accounts have time limits or terms?
No, money market accounts do not have time limits or terms. You can deposit or withdraw money from the account at any time, though there may be limits on how many withdrawals or transfers you can make in a single statement period.
Can I overdraw a money market account?
Whether you can overdraw your money market account depends on the bank you’re using. Some banks will permit overdrafts while others won’t offer any overdraft service.
Keep in mind that overdrawing your account usually incurs a fee. For example, Ally charges $25 when you overdraft your money market account.
Source: Bankrate / Image by drobotdean from freepik.com