Published in: Banks | Jan. 3, 2019

How to Choose a Money Market Account

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For decades, banks basically offered two different kinds of accounts. Checking accounts were designed to allow customers to use paper checks to make withdrawals from their bank accounts, giving them immediate liquidity and convenience. Savings accounts were for money that customers didn't need right away, and their primary appeal to savers was that they offered attractive interest rates on their money.

But banks have evolved over time, and now, some of the products that they offer are designed to give customers the best of both worlds. When it comes to accounts that you can use to keep your cash safe, earn a modest return, and have ready access when needed, money market accounts are a great new addition to the typical bank's lineup of savings products. Below, we'll take a closer look at money market accounts and the best way to choose one that will work best for your individual needs.

Two hands holding an account book.

Image source: Getty Images

What is a money market account?

Money market accounts take some of the best features of checking accounts and savings accounts and combine them into a single structure. They're different from money market mutual funds, which have the similar function of letting savers set money aside and earn interest but which are offered through mutual fund companies rather than banking institutions.

Money market accounts give account holders greater access to their money by giving them the ability to write a limited number of checks during each monthly statement period. Paper checks are allowed for use with money market accounts, or an account holder can also use a debit card that's tied to their account to make debit transactions at participating retail locations.

The only catch is that because federal banking regulations don't treat money market accounts in the same way that they treat checking accounts, there are limits on check-writing from money market accounts. Specifically, Regulation D sets a maximum of six checks per monthly statement period for money market accounts.

At the same time, money market accounts offer the higher interest rates that savings accounts offer. Even now, some regular checking accounts pay no interest, and even those that do offer competitive interest rates often lag behind their savings-oriented counterparts. Money market accounts typically feature interest rates that are fairly close to what savings accounts pay, and you'll even find some banks at which the rate paid on money market account balances is higher than the corresponding savings account rate.

The tradeoff at many financial institutions is that in order to get that attractive interest rate, you'll often have to deposit and maintain a minimum account balance that's higher than what you'll typically see with simpler checking and savings accounts. Minimums of $10,000 or more aren't unheard of, and even those banks that offer lower amounts still often charge pricey monthly fees if you can't maintain balances in the $1,000 to $5,000 range.

Money market accounts get the same deposit insurance protection as other bank accounts. Traditional banks offer FDIC insurance protection of up to $250,000 per institution. Credit unions give the same protection provided through the NCUA.

How to pick the best money market account

If money market accounts sound good to you, then here's a pretty simple three-step process you can use to assess the various offerings at the banks and credit unions in your area and identify which ones look most promising.

Step 1: Weigh the costs

The most important aspect of picking a money market account is looking at the potential fees that your bank or credit union will charge. No matter how attractive an interest rate might be, the steady rise in fees can wipe out the benefit of a money market account if you can't find ways to avoid paying them. The best choice is a money market account that has no fees at all, either because the institution doesn't charge any fees or because your own particular circumstances will allow you to escape them because you keep a big enough account balance. Paying modest fees might be worth it in some cases, but it doesn't take much to make it a smarter choice simply to go with an alternative like a fee-free savings account if fees get too high.

Step 2: Look for high rates

It's also smart to compare money market accounts based on the interest rates they pay. However, there are a couple things to keep in mind. First, some institutions have tiered rates that depend on your account balance, so if you foresee your balance fluctuating substantially, make sure that the entire rate tier structure looks attractive. Also, unlike certificates of deposit, there's no guarantee that banks will maintain a given interest rate on a money market account for any set period. In other words, your rate could go down next week, or a competitor could raise its rate to look even more attractive.

Step 3: Search for the features you want

Like any other bank account, a money market account opens the door to a relationship with a financial institution that can offer additional services you want and need. Online banks often provide the highest interest rates, but you typically won't get the in-person service that a physical bank branch can provide. Those who want ATM access to their money market accounts will also want to ensure that they have ample ATMs that won't require paying huge fees to use. Moreover, in the long run, you might want to consider whether the bank with which you open a money market account can also provide higher-end services like mortgage loans, investment advice, or even wealth management to assist you with all of your financial needs.

Find the right money market account today

It's important to set money aside for unexpected needs, and a money market account can be a great way to have access to your cash when you need it while also earning a competitive interest rate on your savings. Going through all the different money market accounts available can take some time, but by picking the things that are most important to you to focus on, you'll be in the best position to get the right money market account for your needs.

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