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For short-term savings, money market accounts historically checked all the boxes for many savers: liquidity, great returns, and security.
Money market deposit accounts share similarities with both savings and checking accounts.
While you’re limited to six withdrawals per month, accessing your funds is easy with paper checks or even debit card access. You can earn a competitive APY, similar to high-yield savings. Like other deposit accounts, MMAs are insured by the FDIC (up to $250,000).
But there are downsides: minimum balance requirements and account fees can range higher for money market accounts than many high-yield savings accounts. And with the continued rise of online banks, you may find high-yield savings options with higher interest. In today’s low rate environment marked by APYs at or below 1% and continuing to fall, money market accounts aren’t as competitive a product as they once were.
Score A Higher Rate
If you’re considering a money market account, you can still grow your money with a competitive APY, even in today’s market.
“It always pays to be paying attention to what you’re getting and what you could be getting,” says Adam Stockton, director of consumer pricing at Novantas, an advisory firm for financial institutions based in New York. “People got used to probably paying more attention when rates are higher, but there still are big differences.”
Keep in mind, though, the most effective money market or savings account fits your overall savings needs and goals, rather than focusing specifically on interest earned, especially today.
“Everyone has to make the tradeoffs for themselves,” Stockton says. “But there are still deals out there for people who are willing to look around and take some time.”
Here are a few factors that can help ensure you’re getting the best rate on a money market account:
Generally, you’re not going to find the most competitive APY at large banks with multiple nationwide locations where you might have a checking account.
If you’re not ready to commit to online banking, look into local credit unions and community or regional banks.
But because they don’t have brick-and-mortar locations and incur fewer overhead costs, online banks are often where you’ll find the highest available interest. Look for money market accounts with online banks or even online divisions of traditional financial institutions, which often top the list of APY offerings.
Consider Your Balance
You may score a better rate or earn extra perks if you’re able to keep a larger balance in your account. For example, a bank may offer a specific rate for account holders with deposits up to $10,000, then increase that rate for deposits between $10,000 and $25,000 and increase it again for deposits above $25,000.
This could be especially useful if you’re looking for an account to store your emergency fund, and may even encourage you not to take the money out for unnecessary spending. If you’re near the threshold to earn additional interest on an account, consider pooling savings stored in other accounts or any extra cash you have to earn a bit extra APY.
And remember, some money market accounts require minimum balances to open the account, and to earn additional interest.
Read the Fine Print
One way to ensure you don’t earn any interest at all on your account balance is by letting fees chip away at your earnings.
In addition to minimum opening deposits, money market accounts may require certain balances for your account to remain active without fees. Another easy way to rack up fees with a money market account is by using your provided debit card to exceed the federal limit of six withdrawals per month.
Carefully read your bank agreement’s fine print to ensure you’re not paying a monthly maintenance fee or incurring penalties with your account activity.
In today’s rate environment, interest will be comparable across these types of accounts, but there are some nuances based on your timeline and other banking activities. For example, long-term CDs may have slightly higher APYs, and some online banks offer higher rates for high-yield savings customers who open multiple account types or complete other activities.
You can still find competitive rates on money market accounts today. But don’t forget to compare other account types, such as high-yield savings accounts, to make sure your account is helping you reach your savings goals.
Stick to Your Goals
Money market accounts with debit or check-writing access make it easy to withdraw money, but taking money out of your account won’t help you earn interest.
“Getting an account at a whole different bank can create a barrier to entry that helps you save,” says Lauryn Williams, CFP, founder of Worth Winning, a financial planning firm in Dallas. “If that’s what you need, focus on that rather than the actual interest rate. If you’re not putting money into the savings account, you’re not able to take advantage of the interest in the first place.”
Every dollar you remove from your money market account, or any savings account, is one less dollar on which interest can accumulate. Be intentional about the purpose of your savings balance before you open your account, and only withdraw the money if it serves that goal or an emergency arises.
Especially in today’s low rate environment, tailoring your account to your overall savings strategy and goals will serve you better in the long run than chasing interest rates.
“In the grand scheme of things, you need to be thinking about your goals, your values and the best way for you to modify your behavior to help you reach those goals,” Williams says.
Interest on high-yield savings, money market accounts, and even CDs are largely equal, hovering around just 1% APY. That means you should look for other discerning details, such as your timeline, ease of access, and contribution plan.
“It really comes down to what your end goal is, and then which vehicle makes the most sense, says Anjali Jariwala, CFP, and founder of Fit Advisors in Redondo Beach, CA. “Unfortunately, right now, we’re in such a low-interest rate environment that nothing is really going to yield the goal of earning more money on that balance.”