Money Market accounts (MMA) should be viewed as a hybrid between checking and savings accounts. Most banks and credit unions will provide a number of different account options. The key points surrounding MMAs are.
- Requires a larger minimum balance to open and keep open (versus a savings or checking account). Some minimums may be as high as $10,000.
- Provides check writing capability, but with limits on the number you can write monthly.
- Generally a bit higher interest rate than traditional savings accounts.
- For the most part are very liquid, you can move money in and out of the account without penalties as long as you maintain the minimum – check with your financial institution.
- Considered a low risk investment vehicle, you will earn the financial institutions annual percentage rate (APR) as long as you maintain the minimum account balance.
- Don’t confuse MMAs with Money Market Funds (MMF). MMFs are a type of mutual fund that invest in short-term securities. More on MMFs in a future blog post.
MMAs are typically not considered a long-term investment option (you wouldn’t want to put all your money in a MMA as a primary retirement vehicle for 50 years – you wouldn’t make much money). Money Market accounts typically pay a bit more than a traditional savings account. However, they are another financial tool if you’re looking for a place to park your cash and earn more interest than a traditional savings account.
When is a MMA a good investment option?
If you have a bunch of cash in your savings account you could open a MMA as a method of allocation for your emergency fund. Because an MMA allows you limited check writing capability you know you would have access to your money if your water heater dies, or you need to repair or purchase a vehicle with cash.
Do you have a Money Market account? How do you use a MMA as part of your financial strategy? Comment below.