What is a Money Market account and is it right for you?

Mom and daughter holding a piggy bank

As we head into the end of the year, many people are looking for ways to build up their savings. Whether it’s for holiday vacations or a down payment on a house or car, one way to achieve savings goals is through investments like a Money Market account.

Investing can be intimidating though, and with so many options, it may be hard to know what is best for you. Moreover, the complexities of the financial markets can make investing seem scary enough to leave you pilfering your piggy bank instead.

Don’t smash that piggy just yet, though. If you’ve been looking for new ways to save for short-term goals, you may want to consider a Money Market account. But what exactly are they and are they right for your goals? Let’s dive in.

What is a Money Market account?

A Money Market account (MMA) is a savings account that often includes check-writing and debit card privileges. This may be helpful in an emergency, as you may access funds more easily than with traditional savings accounts. Additionally, most MMAs pay a higher interest rate than regular savings accounts, earning you more money the longer it collects interest.

A minimum initial deposit is required to open an MMA and balances must be maintained over a certain threshold while they are active. A service charge is incurred if the balance falls below that minimum amount. You earn dividends by maintaining your daily balance, and dividends are compounded monthly. If needed, you can withdraw from this account up to six times in a month.

In terms of risk, MMAs are a secure way to save money, with deposits insured by the Federal Deposit Insurance Company (FDIC) at banks and the National Credit Union Administration (NCUA) at credit unions. That means your money is protected even if the issuing institution collapses.

When should I open a Money Market account?

MMAs are best for people who are looking to earn more interest than they would with a savings account, particularly with short-term savings goals in mind. For example, if you’re looking to save money for a specific purchase, like a vacation or a down payment, an MMA may be a good option. MMAs are not intended for long-term financial planning.

What are the advantages and disadvantages of a Money Market account?

Now that you understand what an MMA is and how it works, let’s cover the pros and cons of MMAs. One of the biggest advantages of MMAs are the higher interest rates, which allows your money to work harder. Additionally, you can access your funds more easily than with a traditional savings account when needed, either through check-writing privileges or a debit card. Lastly, MMAs are a safe place for you to store cash while working towards a short-term savings goal because they have federal insurance protection.

Some downsides of MMAs include limited transactions, fees, withdrawal restrictions, and minimum balance requirements. Some institutions require a high minimum balance to open an MMA and may impose fees if that balance is not maintained.

What are the alternatives to a Money Market account?

If a Money Market account doesn’t seem like your perfect match, there are other options. Alternatives to an MMA include a savings account or certificate of deposit (CD). Like an MMA, a savings account or CD allows you to save towards a goal. CDs, however, require only one deposit that stays in the account until its maturity date. Because you give up access to your funds, they generally offer a higher rate of return versus traditional savings accounts or MMAs.

Is a Money Market account the same as a money market fund?

It is important to note that a Money Market account is not the same thing as a money market fund. Money market funds are investments that could lose value if the market falls, while an MMA is independent of the market. Moreover, unlike MMAs, money market funds are not federally insured by the FDIC or NCUA.

If you’re considering an investment, speak with your financial advisor to determine which options will meet your individual needs—in the short and long term. You can schedule a meeting at no cost and no obligation with a financial advisor at Georgia’s Own to discuss your investment plans.

Final takeaways:

  • MMAs are high-interest accounts that give account holders the benefits and features of both savings and checking accounts, including check-writing and debit card privileges.
  • MMAs are best for achieving short-term financial goals as opposed to long-term financial planning.
  • Alternatives to MMAs include certificates of deposit (CDs) or savings accounts.

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