Money market accounts typically offer higher returns than traditional savings accounts. They also provide more flexible access to your money than with a CD. For those reasons, a money market account can be ideal for banking customers with short-term savings goals.
Whether you are saving for a car or vacation, a money market account can reliably grow your money. Consider the following five tips as you comparison shop money market accounts in your area.
How to Choose a Money Market Account
1. Compare Rates
Money market accounts are low-risk deposit options. When comparing accounts, consider interest rates on bank, credit union and online money market accounts. “The higher the yield, the more attractive the choice,” said Michael Hardy, a certified financial planner with Mollot & Hardy in Buffalo, N.Y. He said money market accounts are good options for banking customers who want to keep their money safe while growing savings.
Credit union money market accounts and online money market accounts can offer higher rates than those found at larger banks. Be wary of promotional rates, however. While introductory rates might be appealing, make sure the rate you get after your promotional period ends is still competitive.
2. Look at Minimum Deposit Requirements
Your account’s interest rate is not the only important factor to consider. Many banks and credit unions have minimum deposit requirements for money market accounts. If you want higher yields, you might need to maintain a larger balance.
While you can open a basic money market account at Regions Bank with $100, for example, you’ll only earn 0.01% APY. Its Platinum Relationship Money Market account, however, requires a $15,000 opening deposit but earns you higher, tiered rates, up to 0.25% APY.
If you don’t have a lot of cash on hand to open an account, your choices will be more limited. Some banks will allow you to open money market accounts with small deposits. Ally Bank, for example, does not have a minimum deposit requirement.
3. Consider Balance Requirements
Many financial institutions will hit you with fees if you don’t maintain minimum required balances on your accounts. When you compare money market accounts, keep an eye out for balance requirements to make sure you can avoid getting hit with fees. If you open an account with requirements you can’t meet, hefty monthly fees can eat into your balance and earnings.
A few banks, such as Ally Bank and Sallie Mae, don’t charge monthly service fees. Other banks require you to maintain a balance of at least $1,000 to avoid fees. Others, like SunTrust Bank, will only waive monthly service fees if you maintain a balance of $5,000 or more.
4. Understand Withdrawal Limits
Federal regulations limit the number of transactions you can make with your money market account. While you can make unlimited deposits, you can’t make more than six transfers per month to other accounts or to third parties by check, telephone or card. If you exceed your account’s monthly transaction limit, you might be hit with certain fees or you could have your account closed or converted to another type of bank account.
You can make unlimited ATM withdrawals from your money market account, however. If your account provides a free debit card, you can have easier access to your money.
5. Be Choosy About the Financial Institution
As you review account features, don’t forget to compare banks and credit unions. “When choosing a financial institution to open your money market account, you should consider one that has been incorporated for a long time with high ratings and a reputable brand name,” Hardy said.
You should at least make sure your bank or credit union has money market accounts that are insured. The FDIC and NCUA insure deposits up to $250,000, in case your bank or credit union fails. You can also research bank and credit union ratings.
Weiss Ratings, an independent bank and credit union ratings provider, can help you evaluate how dependable certain financial institutions are. The website monitors the financial safety of more than 7,300 banks and 7,500 credit unions.
Keep Reading: How to Start Investing With Less Than $500
Research money market rates and features online. Read the terms and conditions for promotional rates and find out what conditions you need to meet to avoid fees. If you plan to open a money market account at a credit union, you’ll first need to become a member of that credit union.
No matter where you choose to bank, make sure your deposits are earning competitive interest rates. You can speak with a financial advisor to help you determine how best to put your money market account to work.