One way you can increase the amount of interest you earn on your bank account is to open a money market account. A money market account is one that offers a yield based on the interest rates seen in the money markets. If you open a money market account at a bank, online bank, or credit union that is insured by the FDIC or the NCUA, you will find that your money is protected, up to $250,000.
Features of a Money Market Account
A money market account is deposit account. It means you are putting money in the bank. In the case of a money market account, you are paid interest. The bank uses your money to make loans to others at a higher rate of interest. So, even though you are being paid to keep your money at the bank, the bank is also earning money on the difference between what it pays you, and what it receives for lending out the money to others. Often, a money market account resembles a cross between a savings account and a checking account. Like a savings account, you receive interest. Additionally, there are usually limits to how often you can withdraw money from a money market account. In many cases, you are limited to no more than six withdrawals a month. Like a savings account, your money market account is not considered a transactional account.
On the other hand, many money market accounts also offer check writing capabilities. You can usually write between three and six checks each month from your money market account. Depending on the money market rates, your account may or may not offer an interest on par with what is offered by a growing number of rewards checking accounts.
Fees and Minimums with a Money Market Account
Financial institutions do not offer interest on just any account. As a result, your money market account will be subject to a minimum balance. Most money market accounts require that you maintain at least $1,000 or $2,500 in your account to avoid monthly fees. Some money market accounts might have even higher requirements. You may also be charged hefty fees if you exceed the number of allowable withdrawals, or checks written, during the month.
You should also find out what rates are offered for higher balances. In some cases, you will receive a higher yield if you keep more money in your account. Realize, though, that some banks will only offer better yields up to a certain point. Some accounts, once you reach a high balance (usually $50,000), will cut your interest rate again. They want you to keep your money in the bank, but they also don’t want you to have such a high money market account balance that the yield they pay you begins to get fairly sizable.
Shopping Around for a Money Market Account
You can shop around for the money market account that best fits your needs. Check with local banks and credit unions, and look online for good rates on accounts. Compare the requirements of the account, and consider the rates you can get. Then, make a decision based on what will provide you with the best return, and the best flexibility.
(MMA) Money Market Rates by Bank: