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Money market accounts (MMAs) are interest-bearing deposit accounts commonly available with banks and credit unions. They offer many advantages for saving, including competitive interest rates and flexible access to cash.
If you’re thinking about saving with an MMA, using a money market account calculator can help you determine how much interest you could earn based on your rate, contributions and timeline.
What Is a Money Market Account?
A money market account is a deposit account that earns interest. You add funds and receive regular earnings, and you’re able to withdraw money as needed. Money market accounts earn variable interest rates that are often better than savings account interest rates.
Money market accounts have some features in common with savings accounts and some in common with checking accounts. Like checking accounts, money market accounts may come with checkbooks or debit cards. Like savings accounts, money market accounts earn interest and may have withdrawal restrictions, monthly fees and minimum deposit and balance requirements. Some money market accounts have no minimums, while others require $5,000 or more to open and earn interest.
There are many pros and cons of money market accounts compared to other deposit accounts. These are ideal for keeping your emergency fund close and maximizing interest on short-term savings.
Money Market Accounts vs. Savings Accounts
Money market accounts may offer better interest rates than high-yield savings accounts, but this depends on the institution. MMAs tend to have higher minimum deposit and balance requirements than savings accounts too, in addition to higher monthly fees.
Online banks and credit unions typically have the best money market account rates and may also have the fewest fees and low or no minimums.
How Does a Money Market Account Work?
Money market accounts work similarly to typical savings accounts with a little more flexibility. Many offer check-writing capabilities or include a debit card for convenient access to your money, but they do not work like transaction accounts.
Money market accounts are not meant for everyday spending and often have restrictions on the number of withdrawals and transactions you can make—typically six per statement period, although thanks to changes in Regulation D, some MMAs allow unlimited transactions.
Many money market accounts carry monthly fees, which may be waivable by meeting balance or activity requirements. Other times, you can’t avoid them, and these fees can eat into interest.
Typically, the interest rate you qualify for on a money market account is determined by your total balance. Many used tiered interest rate structures that pay different rates on different balance tiers. Usually, higher balances earn the best rates, but you also might see all balance tiers earning the same rate or even the best rates reserved for the lowest balances.
Interest is usually compounded daily and credited monthly for MMAs. This means it’s calculated every day and paid to your account every month. With compound interest, you’ll earn interest on both your initial deposit and on the interest your account has already earned. This money market account calculator factors in compound interest, assuming you don’t withdraw funds.
How To Open a Money Market Account
You can open a money market account at many traditional banks, online banks and credit unions. Here’s how to get started.
- Fill out an application. Most accounts offer online applications, but some money market accounts may require you to visit a branch in person to apply.
- Verify your identity. Provide personal identification information, your Social Security number and contact information for verification purposes.
- Deposit funds. Many money market accounts require you to meet a certain minimum deposit when funding your account. Be sure you are ready to make a deposit when applying so you can transfer funds right away. Many banks permit ACH transfers, direct deposits and wire transfers. Some may also allow checks.
After your account is open and funded, you’ll start earning interest.
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How Safe Is a Money Market Account?
Money market accounts are safe and low-risk deposit accounts. Unlike investment accounts that may invest your money in the stock market or other volatile assets, there is no risk of losing your money in a money market account. The only way you could end up with less cash than you started with is if you were to pay more in fees than you earn in interest.
Like other deposit accounts, money market accounts are covered by FDIC insurance or NCUA insurance up to $250,000 per depositor. The FDIC covers banks, and the NCUA covers credit unions. If an institution were to default, your money market deposits would be fully protected up to this limit.
Frequently Asked Questions (FAQs)
How do you calculate earnings on a money market account?
To calculate earnings on a money market account, you can use your account’s interest rate to determine simple interest on your deposit and your annual percentage yield (APY) to determine your actual earnings over the course of a year, with compounding. The longer you leave your account to grow without making withdrawals, the more it will grow. Forbes Advisor’s money market interest calculator makes it easy to estimate earnings.
How much money should you keep in a money market account?
Money market accounts tend to earn more interest than savings accounts, meaning your money might grow a little faster in an MMA. Consider keeping some money you plan to save in a money market account if you can meet the deposit and balance requirements to earn the best rates.
Are money market accounts FDIC-insured?
Yes, money market accounts are FDIC-insured when opened at FDIC-insured banks and NCUA-insured when opened at NCUA-insured credit unions. Like checking and savings accounts, the funds you put into a money market account are insured up to $250,000.
How do money market accounts vs. CDs compare?
Money market accounts and certificates of deposit (CDs) can both be suitable options for safe long-term saving. However, CDs require you to lock up your money for a specified term, while money market accounts allow you to deposit and withdraw funds freely (with some restrictions on the number of monthly withdrawals). CDs also earn fixed interest rates while MMAs earn variable rates.
