Jean's Blog

Ask Jean: Making Sense of Money Markets

Posted by Jean

“I have a money market that I opened online 1 year ago with $1. One year later, it still has $1 because guess I don’t know that I fully understand what a money market does for me, not to mention I forgot about it. Could you help me understand this?” – Monica

Money market deposit accounts are a lot like your run-of-the-mill savings accounts. Both will help you accumulate money in a safe, FDIC-insured (up to $250,000 per depositor) place. But there are some differences as well:

• MMAs historically have paid more interest on deposits.  I say “historically” because – especially today – there’s no hard and fast rule.  According to bankrate.com, right now the highest-yielding MMA is paying 1.45% annually, while the highest-yielding savings account is paying 1.50%.   If you have more to deposit (upwards of $10,000 or $25,000) you should put it in the type of account that pays more over time.
• MMAs have limited check-writing and withdrawal privileges.   Unlike savings accounts, money markets come with checks – but you can only write a certain number of checks each month (most banks limit it to three). Banks also regulate the number of withdrawals you can make from your MMA each month (usually, you’re allowed six withdrawals). Keep in mind though, that some – but not all — banks sometimes limit the number of withdrawals you can make from a savings account.
• MMAs tend to have higher minimums than savings accounts.  For many banks, you’re required to make an initial deposit – often ranging between $100 to $2500 — but you can also find MMAs without those minimums, just as you can find some savings accounts with competitive rates of interest.  Again, bankrate.com is your best source.

My advice: Switching banks is a hassle.  So find yourself a competitive money market or savings account now before interest rates start to rise — then capture the rewards when they roll in.  As for your $1?  Really?  I hope that you’re saving some real money somewhere as well (and that that somewhere is not your mattress.)