Money Market Accounts Combine Checking and Savings Features

Financial Industry Regulatory Authority (FINRA)
Money Market Accounts Combine Checking and Savings Features
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A money market account lets you write checks to access your savings. ©iStockphoto.com/bezov

Money Market Accounts Combine Checking and Savings Features

You like the convenience, liquidity and safety of your bank or credit union savings account for short-term cash savings. Wouldn’t it be great to have all that with a slightly higher interest rate and check-writing privileges? Money market accounts usually pay a better rate than traditional savings accounts. They are also insured at banks by the Federal Deposit Insurance Corporation (FDIC) and at credit unions by the National Credit Union Share Insurance Fund (NCUSIF), which makes them different from money market mutual funds.

Money market accounts tend to have higher balance requirements than savings accounts. For instance, some banks or credit unions require you to deposit $1,000 to open an account and keep a daily balance of $1,000 to avoid paying any account maintenance fees. If your balance falls below that amount, you are charged a monthly fee. Other banks may require higher minimum balances. Go online to compare balance requirements, fees and interest rates for money market accounts at different banks. Some banks and credit unions may even pay you a different interest rate depending on the balance in your money market account.

Unlike many traditional savings accounts, money market accounts let you write a limited number of checks each month. This gives you the opportunity to pay some bills directly from savings. The Federal Reserve limits the number of withdrawals from money market accounts to six during a calendar month. A bank or credit union may include checks, electronic withdrawals and transfers to other accounts to reach that limit. Some banks and credit unions may have a three-check limit, while others will let you write six each month.

If you exceed the check limit, the bank won’t process any additional check transactions from your money market account until the next month. And it will likely charge you a fee for each extra check. However, you can make all the withdrawals you’d like in person at a bank or credit union branch or ATM, and then deposit that money into your checking account without penalty. In fact, some banks will issue a debit card for your money market account, allowing you to make unlimited monthly withdrawals from an ATM.

Money market accounts are good places for your emergency fund, earning you a little more interest until you need the money for unexpected events. They’re also a convenient place to park money you want to invest later.

Money Market Mutual Funds

Money market mutual funds are similar to money market accounts in some ways. They typically offer comparable interest rates and many have check-writing privileges. Most have no limits on the number of checks you can write each month. However, any check you write might have to be for at least a required minimum, such as $500.

But a major difference is that money market mutual funds, unlike money market accounts, are not FDIC insured. Some funds, however, may offer their own insurance. Although money market funds seek to maintain a stable price of $1 a share, there is always the possibility that you could lose some of your principal.

Remember it pays to compare interest rates of money market accounts and money market mutual funds. Even a small difference in the rate can result in a substantial difference in the interest you earn. It is up to you to decide, however, whether you prefer FDIC or NCUSIF insurance even if that means a slightly lower interest rate.

Use FINRA’s savings calculator to see how a consistent approach to saving can make your money grow. For more information about investing, visit www.finra.org.

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