If you want to get bigger returns on your investments but don’t want to gamble in the stock market, a money market account might be just the ticket. So, what is a money market account?
Like a savings accounts, a money market account is a type of deposit account and both are FDIC-insured. Money market account rates are higher than savings accounts’. Both savings and money market accounts, however, limit withdrawals or transfers to six per statement cycle — a figure set by federal law. MMAs are different from money market funds, which are open-ended mutual funds that invest in short-term securities and are not FDIC-insured. Accessing money market account funds is also different than savings accounts; MMAs often offer check writing, as well as debit card and ATM access, which is uncommon with savings accounts.
Stick to the following tips and save your money efficiently, and you should be able to get bigger returns every year. Get started saving today and put your money in one of the best money market accounts available.
How to Maximize Your Money Market Account Savings
Money market rates are often higher than savings rates. For example, at Capital One, a money market account can pay as much as 1.60% APY, whereas its traditional savings account rate is 1.00% APY.
National average money market account rates come in at 0.09 percent and savings accounts at 0.06 percent, according to the FDIC. In addition to earning higher rates, you can use the following strategies to make the most of your MMA savings:
- Savings automation
- App usage
Use as one or all of these strategies according to your financial situation. Here’s a closer look at four tips to improve your money market account savings:
1. Make a Budget
The first step to saving more money is to know exactly how much you’re spending each month. The best way to free up more money to put it into savings accounts or MMAs is to create a budget — and make sure it’s a realistic budget you can stick with.
Many institutions that offer money market accounts can help you with this goal. For example, the St. Paul Federal Credit Union offers a free service called MoneyDesktop that incorporates account aggregation, expense tracking and budgeting to help you get your financial life in order.
2. Automate Your Savings
Budgeting is great, but sometimes it can be hard to overcome temptation. One great way to avoid this problem is to automate your savings.
If you automatically put a fixed amount of your money into your savings when you get paid, you won’t run the risk of wasting cash on things you don’t need because you won’t even see the funds that go into your savings. You can easily set up a recurring, automatic transfer from your checking account or your paycheck to your money market account. Most financial institutions allow you to set up automatic deposits online.
3. Set Savings Goals
One way to help yourself stay motivated to save is to set savings goals. Whether you’re saving for a rainy-day fund or a plan to pay for your kids’ education, the important thing is to make savings a habit.
The Consumer Financial Protection Bureau recommends paying yourself first — before you pay off your other bills — to prioritize your savings. If you wait until the end of the month to transfer your savings, you could easily squander it on other purchases before then. Many banks offer online savings calculators that help you establish plans based on your savings goals and the time you have to reach them.
4. Use Apps
In addition to standard money market savings, a number of investment apps can help you automate the savings process even further. Acorns, for example, will take your individual purchases and round them up to the next dollar amount, then invest the difference for you. So, if you buy a cup of coffee for $2.49, Acorns will round the charge up to $3 and invest the remaining 51 cents on your behalf.
Stash is an investment app that automatically deducts money from your account and invests it in one of 30 investment options on your behalf — and you need only $5 minimum to get started. Although each of these services involves more risk than simply depositing money in an MMA, they are examples of other ways that you can automate and diversify your savings.
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Michael McDonald contributed to the reporting for this article.