How to Choose a Money Market Account

How to Choose a Money Market Account

By Debra L. Dragon

Here's everything you need to know about money market account on one page:

Minimum Deposit Required

• Each bank determines the minimum deposit amount for their money market accounts - typically ranging from $500 to $2,500.

How safe are MM Deposit Accounts?

• Money market deposit accounts are insured by the FDIC up to $100,000 making them as safe as your traditional FDIC insured savings account.

Advantages of Money Market Accounts

• Money market deposit accounts have competitive interest rates, especially when compared to traditional savings accounts.
• You can access your money whenever you need to, and take withdrawals in person, write checks, or transfer the money into your checking account.
• There are no limits to how many bank transfers you can make per month from an MMDA and a checking or savings account held at the same bank.
• You can move your money if the interest rates drop, without penalties or fees for withdrawing the money and putting it into a different investment.
• You can connect your MMDA to your brokerage account and purchase stocks, bonds and treasuries by phone from your money market account.

Disadvantages

• If you go over the specified limit, you can be charged fees.
• You have to maintain a minimum balance to avoid paying monthly account fees.
• You are limited as to how many checks you can write per month from your account. Most banks allow up to 3 checks per month and if you write more than that, there are fees.
• If you don't maintain the minimum balance, in addition to being charged a fee, sometimes your interest rate will be decreased, too.
• The interest rates on MMDAs are lower than what you can earn through money market funds, because they are FDIC insured.

If you've decided to use a money market account to benefit from higher interest rates and to avoid the risks associated with other investments, your next decision is deciding which money market account to open. Money market accounts are just like savings accounts in that the money you deposit is insured by the Federal Deposit Insurance Corporation (FDIC), so even if the bank holding your money goes bankrupt - the government guarantees you will not lose your money.

When selecting a Money Market account to save your money, there are a number of things you'll want to consider in order to make the best selection for your unique circumstances.

1) Number of Withdrawals Allowed

Money Market Accounts typically set up a limit for how many withdrawals you can make each month.

2) Minimum Required Balance

While you can open a standard savings or checking account with next to nothing these days, money market accounts require much higher minimum balances if you want to avoid "minimum balance fees".

3) Account Fees

Just like any other deposit account, a Money Market account can have a variety of fees associated with it. Keep an eye on other fees that the bank may charge, including fees for writing checks and monthly service or maintenance fees, atm withdrawal fees, etc.

4) Interest Rate

The main reason people use Money Market accounts is to take advantage of higher interest rates than they could get with a traditional savings or checking account.