Ken Tumin
Ken Tumin, founder of DepositAccounts.com (now part of Lending Tree), which monitors interest rates and various developments at about 15,000 banks and credit unions.
We all know about checking and savings accounts, but you may not be aware of a third type of account. A money-market savings account combines features of checking and savings accounts but earns higher interest and still allows you access to your money. Here’s what you need to know to decide if one is right for you…
Like both savings and checking accounts, money-market savings accounts are deposit accounts, meaning that they consist of money you’ve put into a bank or credit union, and they’re insured by the Federal Deposit Insurance Corporation up to $250,000.
As with a savings account, a bank’s expectation is that you’ll park funds in a money-market account and leave it largely untouched. Money-market accounts generally earn more interest than savings accounts. Recent average rates for savings accounts at traditional banks have been around 0.45% APY…while average money-market rates at traditional banks have been 0.68% APY. Rates at online banks for both savings accounts and money-market accounts tend to be considerably higher, recently in the territory of 4.5% APY, nearly 10 times that of traditional banks.
Money-market accounts often are tiered—the greater the amount of money kept in a money-market account, the higher the interest rate. Minimum opening balances typically are between $1,000 and $10,000.
In the past, money-market accounts resembled checking accounts because they came with checkwriting privileges of between three and six transactions per month. During the pandemic, the Federal Reserve lifted this restriction, allowing banks to set their own limitations. Most traditional banks have kept a six-transaction-per-month limit…Ally limits withdrawals (including checks) to no more than 10 per statement period. BankUnited offers free checkwriting and unlimited withdrawal transactions on its money market. Other online banks have done away with checkwriting or offer unlimited checkwriting.
You can make ACH transactions (electronic payments between banks and credit unions) and Venmo-style payments (mobile payments among people and businesses) from money-market accounts, but some may limit the number or type of transactions. ATM withdrawals are not limited in number, but the dollar amount may be limited.
A money-market account can be a good idea if you’d like to earn more on your savings while retaining the ability to do a few transactions per month. Suggestion: Open an online money-market savings account, and link it to your checking account to cover any overdrafts. That allows you to keep more money in an account earning a higher interest rate.When you’re shopping for a money-market account, pay attention to the interest rate…checkwriting features…and the ability to link to your checking account. You can compare features of hundreds of money-market accounts at DepositAccounts.com.
Sometimes money-market deposit accounts are confused with money-market mutual funds. As the name implies, money-market mutual funds are not bank deposit accounts, but investment funds held with brokerages such as Schwab and Fidelity. Consequently, money-market mutual fund deposits are not FDIC insured. Aside from access to your liquidity (deposits and withdrawals), which both types allow to varying degrees, there are few similarities between money-market mutual funds and money-market savings accounts.
