A money market account is a savings account that offers a higher rate of interest than a traditional savings account. Like savings accounts, money market accounts have specific rules with a limited number of monthly transactions on the withdrawals from the account. Before you head to the bank to open an account, get details on fees, interest rates, minimum balance requirements and other money market account features.
8 Questions to Ask Before You Open a Money Market Account
Before you open a money market account, make sure you have a clear understanding of how it works and what requirements it has so you can avoid fees and make the most out of this account type. Find the answers to these questions — through online research or by contacting your bank — before opening a money market account:
1. What Is a Money Market Account?
Basically, a money market account is similar to a savings account, but it has a higher rate of interest than a traditional savings account. Money market accounts typically have the following limits:
- There are limits on the number of withdrawals you can make each month.
- Generally, money market accounts have a higher minimum balance requirement than traditional savings accounts in order to waive the monthly fee.
- Depending on the bank, you might be able to access the money market account through checks and a debit card.
2. What Are the Minimum Balance Requirements?
Each bank or credit union will have different minimum balance requirements on the account. Additionally, some banks might set the interest rate based on the balance in your account to incentivize higher deposits. Get specific minimum balance requirements from the bank you are considering opening an account with. If you’re worried you cannot maintain a high monthly balance, look for banks that offer a lower required minimum.
Get Answers: Questions to Ask Before Opening a Savings Account
3. What Are the Money Market Account Rates?
Another important factor to consider is the interest rate paid on a money market account. Banks and credit unions might have tiered interest rates and offer higher interest rates if you have a higher balance in the account. Shopping around for the best rate allows you to increase your earnings potential. Be sure to check with both banks and credit unions. Many money market accounts have a variable rate that is dependent on market conditions and might go up as the market improves.
Check Out: 10 Best Money Market Accounts and Rates
4. How Does the Account Compound Interest?
Compounding interest is when the money you earn as interest or a dividend that has been paid, is reinvested back into the account and you can earn interest on that money too. Different banks might compound the interest on a daily or monthly basis. If you’re choosing between two similar accounts, but one compounds monthly while the other compounds daily, choose the latter. Daily compounding can allow you to earn more.
5. Is a Money Market Account Covered by FDIC Insurance?
If you open a money market account with a bank or credit union your funds will be covered by the FDIC or NCUA respectively. You can rest assured that the accounts have the same coverage as other accounts at a bank. This is different from a money market offered by investment firms. Deposits in a money market mutual fund account are not covered by the FDIC or NCUA, and it is important not to confuse the two.
6. Will I Receive a Checkbook or Debit Card With My Money Market Account?
You can access your money market funds by check, debit card, as well as through withdrawals at the bank or ATM. Your bank or credit union might allow checks or credit cards, but not all banks or credit unions offer them with the account. It’s important to ask your bank if there are any restrictions on accessing your account and how many times you can use the checks or debit card each month.
7. What Are My Withdrawal Limits Each Month?
Regulation D of The Federal Reserve governs the frequency of monthly withdrawals allowed in a money market account. You are allowed six withdrawals each month by electronic transfer, debit card or check. You are allowed to make as many deposits into the account as you want to each month, but this is not a checking account that allows you to complete the majority of your daily transactions.
8. Is a Money Market Account Right for Me?
Whether or not a money market account is suitable for you depends on your personal financial situation. If you find yourself constantly dipping into your savings or have a hard time maintaining a minimum balance, a money market fund might not be for you. If you need a place to store your emergency fund or other liquid savings, either a savings account or a money market account could work. Look for an account with the highest interest rate.