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What Is a Money Market Account and How Can It Help Me?

A money market account is a high-yield savings account that comes with similar features to a checking account, in that you can access your funds easier than you can with a traditional savings account, but you’ll earn a higher return on your money.

woman putting coin in piggy bank

What We'll Cover

  • What a money market account is and how they work
  • When to use a money market account
  • The cons of money market accounts
  • What money market funds are and how they differ from a money market account

Growing up, you probably remember dropping coins and, occasionally, a tightly folded-up dollar bill into your piggy bank. Then, when it was time to access your savings to make that big purchase you were saving for, you likely ran into a little hiccup.

You either needed to break a few fingernails by prying open the rubber stopper on the bottom of the piggy bank, or you went over to Dad’s tool bench and grabbed a hammer.

Your piggy bank was designed to be difficult to open. This made you think long and hard about whether or not you wanted your savings or needed your savings before you could actually open the piggy bank.

Fast forward to your adult years and while the savings principle remains the same, the amount you're saving for is probably much more than what was required for a new video game or pair of shoes.

Whether you’re building your emergency fund, saving for a big vacation, or saving up for Christmas shopping, a money market account may be the perfect solution for your modern-day piggy bank.

 

What Is a Money Market Account?

A money market account is similar to a regular savings account – both are safe places to save your money and both will generate interest. Also, the monthly withdrawal limit you’ll find with both a money market account and a savings account is set at a maximum of six per month. Both are also insured by the federal government through the NCUA or FDIC. So why choose one over the other?

The biggest benefit of a money market account is that they typically pay higher interest on your savings. Depending on your financial institution, a money market account may also give you more flexibility with a debit card and checking transactions.

Did you know no matter which bank or credit union you choose to bank with, all savings and money market accounts are limited to six withdrawals per month by the Federal Reserve’s Regulation D?

 

How Does a Money Market Account Earn Interest?

The bank or credit union where you open your money market account will have an annual percentage yield, or APY. This rate shows you how much your deposit will earn, including compounded interest, over the period of one year.

Often, both banks and credit unions offer tiered-rate money market accounts, which are accounts that increase the APY based on the minimum deposit amount.

For example, here’s how OneAZ Money Market Accounts are tiered:

  • Tiered Money Market Account: $1,000 minimum deposit
  • Savers Advantage Money Market Account: $25,000 minimum deposit
  • Star Yield Money Market Account: $75,000 minimum deposit
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What Are Money Market Accounts Best For?

One of the best places to park your emergency fund is inside a money market account. Some money market accounts are better for emergency savings over traditional savings accounts because you have immediate access to your money market account.

When your hot water heater goes out, the car goes to the mechanic’s shop or your roof starts leaking, the last thing you want is delayed access to your emergency savings. Unlike a savings account, a money market account gives you instant access to your entire emergency fund when you need it most.

 

What are the Cons of a Money Market Account?

While the ease of access to your money market account is a benefit, it also lowers the rate of return you could get when compared to a certificate of deposit from a bank or a share certificate from a credit union.

But your main goal with a money market account isn't to build wealth through the rate of return on your deposit. Instead,

Yet, it can also be a drawback that you have immediate access to your funds. Unlike a savings account that is a little more cumbersome when accessing your savings, you might be more likely to make a large impulse purchase with the cash withdrawal features that come with a money market account.

Money market accounts are great for short-term investments and having immediate access to your cash.

 

Is a Money Market Account Safe?

Yes.

Your deposits are insured up to $250,000 for both banks and credit unions. The Federal Deposit Insurance Corporation (FDIC) provides insurance for bank account holders and the National Credit Union Association (NCUA) provides insurance for credit union members.

 

Are Money Market Accounts and Money Market Funds the Same?

No.

Although they sound very similar, they are completely different from each other. As mentioned earlier, a money market account is a savings tool used for short-term savings goals or emergency funds. The best part of the money market account is combining the best features of both checking and savings accounts into one.

A money market fund on the other hand is not a savings account and is a low-risk mutual fund with easy access to converting the shares of the mutual funds into cash.

The key difference between the two is that a money market account is a type of savings account offered through a credit union or bank that is insured up to $250,000.

A money market fund is an investment with no guarantee on principle, meaning your shares are not insured by the FDIC or NCUA. Typically, investors looking to park cash before purchasing a different investment would utilize a money market fund.

Key Takeaways

  • A money market account is a high-yield savings account that allows you to easily access your funds.
  • Money market accounts are a great place to store short-term savings, like emergency funds, a down payment on a house, or your Christmas shopping.
  • Your deposits in a money market account are federally insured, while money market funds are not insured.

Money market accounts are the perfect option for your emergency fund, saving up for a down payment on a house, a dream vacation or saving for Christmas shopping each year.

Some things to determine when choosing a money market account is whether or not there are minimum deposit requirements, minimum balance requirements, and if there are any fees associated with the account.

While a good interest rate is something to consider, it should not be the focus for your money market account. When you crunch the numbers, you may find the difference in interest rates from one account to another may only be a few dollars per month.

Are you ready to open your own Money Market Account? Visit OneAZ Credit Union at any of our branches across the state of Arizona or by phone: 800-453-9897.

Chris “Peach” Petrie is the founder of Money Peach. Money Peach partnered with OneAZ to provide free financial education to members across the state. To learn more about OneAZ’s partnership with Money Peach, click here.

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APR = Annual Percentage Rate

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