Jumbo Money Market Accounts Versus The Alternatives

Photo illustration to accompany article on jumbo money market accounts

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The global upset of the coronavirus pandemic has investors revisiting their financial strategies. Low interest rates are attracting attention for the real estate and refinance opportunities they present. But these low rates are negatively affecting savings vehicles such as CDs, high-yield accounts, and money market accounts

In the mix of savings options is the jumbo money market account (MMA). A jumbo MMA is a  high-yield savings account that requires a high account minimum, usually $100,000 or more. Before interest rates declined, jumbo MMAs typically paid out higher returns than traditional MMAs while still offering easy access to your funds. 

However, due to federal cuts in interest rates and historically low yields nationwide, “experts are taking another look at jumbo money market accounts right now,” says financial expert Brian Martucci. He runs a personal finance site called Money Crashers, where he dispenses daily advice. 

“There’s not much daylight between regular money market rates and jumbo money market rates,” Martucci continues. “Everyone is chasing yield these days, and that’s likely to continue for the foreseeable future.”

What Is a Jumbo Money Market Account?

The traditional money market account is designed to work as a functional savings account, with most allowing you to write checks even while you stash and save your money. A jumbo money market account is similar, but it is designed to accommodate $100,000 or more. 

“Jumbo MMAs typically offer higher interest rates compared to accounts with lower minimum balance requirements,” explains Baruch Silvermann, CEO and founder of The Smart Investor. He created his free online financial academy to help consumers make better financial decisions. “There is generally a minimum deposit for jumbo MMAs of $25,000 to $100,000. The exact requirement varies between banks and financial institutions.”

However, interest rates overall have plummeted, and since mid-summer, the best jumbo money market rates vary from 0.40% and 0.90% APY.  If you are looking to store a large sum of savings somewhere, are jumbo MMAs the best place? Let’s take a look. 

Pro Tip

In this time of uncertainty, be sure to compare APY rates on various savings vehicles and consider diversifying your account types.

Alternative Investments

The Federal Reserve helps determine how much interest you can earn via its federal funds rate. After steady increases from 2015 to 2018, the coronavirus pandemic brought new rate cuts, bringing the benchmark federal interest rate down to zero. This is significantly cutting into the earning potential consumers previously enjoyed before the virus took hold.

Due to the low-interest environment, “there is a very small gap between different investment plans,” says Silvermann. “The average jumbo MMA rate is approximately 1%, which is a bit less than the average savings account (1.05%) and CD (1.15%), but far more than the standard rate on checking accounts.”

This new rate environment has made other accounts like a high-yield savings account and jumbo CDs suddenly look more attractive than jumbo MMAs.

There are several types of accounts you can use to save your money. Each is measured by its APY, which means annual percentage yield, a figure that factors in a given account’s overall returns, including interest rate and compounded interest. 

Jumbo MMA

Pros

• High APY, but only when the market is performing well 

• Highly liquid (through debit transactions)

• FDIC Insured (up to $250,000)

Cons

• Higher minimum balance requirement

• Unattractive APY currently

Jumbo Certificate of Deposit (CD)

Pros

• Safe, fixed APYs 

• Competitive APYs

• Jumbo CD rates are higher than regular CD rates

• FDIC Insured (up to $250,000)

Cons

• APY not much different than high-yield savings

• Funds are tied up for a period of time. 

High-Yield Savings Account

Pros

• Comparable APY to CDs and MMAs 

• Safe, fixed APY

• No minimum balance requirement

• FDIC Insured (up to $250,000)

Cons

• Mostly online banks

• Less liquid (limited withdrawals)

Is a Jumbo Money Market Account Worth It?

Like anything else, the decision to utilize a jumbo money market account is a personal decision based on your needs.

“If you can afford to keep your funds parked for a year or two, a jumbo CD is probably a better bet,” says Martucci. “Average CD yields, both historically and right now, are higher than MMAs.”

However, if the fear of unemployment is looming or you simply want to maintain quick access to your savings, you may prefer to give up additional interest you could get with a CD for the benefit of staying liquid with a high-yield savings account. 

Diversifying your investments is a smart approach, Silvermann says. Your best option may be to put a portion of your funds in a high-yield savings account for liquidity, and another portion locked up in a CD account, assuming it offers a higher APY. When interest rates return to a more typical environment, you can reassess the value of jumbo MMAs.