Short answer: for a better interest rate on your savings without loss of liquidity, plus some of the functionality of a checking account.
Longer answer: first, let’s define a few things.
What a Money Market Account Is and How It Works
When you deposit your money into a regular savings account, your credit union or bank is limited to making loans with those funds. If you deposit that same money into a money market account, your bank or credit union can put those funds into very low-risk investments, and this enables your financial institution to pass along some of the return on those investments to you, in the form of higher dividends. Don’t get squeamish at the word “investments,” because a money market account is guaranteed, up to $250,000, by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).
To open a money market account, you’ll need to start with a minimum deposit. The amount varies from one financial institution to the next. To continue earning dividends on your savings, you’ll need to maintain a minimum balance in your account, which again varies. Typically, higher balances are rewarded with higher interest rates, usually on a tiered structure.
Keep reading to learn four benefits of a money market account, when it’s a good idea to open one, and how to choose the right one.
Why Use a Money Market Account
For earning a higher interest rate on your savings.
Compared to a regular savings account or checking account, a money market account typically offers a significantly higher interest rate, and that translates into higher yields for you. The interest rate is compounded and credited monthly, so your balance continues to grow regularly. All this means that your savings can earn you more money, without you having to do any extra work beyond maintaining that minimum balance in the account.
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For easy access to your money.
In contrast to share certificates and certificates of deposit, there’s no loss of accessibility when you store your savings in a money market account. You can take out money at any time, without incurring steep early-withdrawal penalties. Though electronic or mobile transfers and withdrawals from a money market account are limited by federal regulation to six per month, there are no restrictions on in-person or ATM withdrawals. As long as your funds don’t dip below the stated minimum balance, you won’t face any fees should you need to move some money out.
For writing checks and using a debit card.
Although it’s technically a type of savings account, your money market account can also do occasional double duty as a checking account. Many credit unions and banks provide money market account holders with a debit card and/or a limited number of checks. So while you won’t want to plan on using a money market account to pay for numerous regular bills, you can conveniently use one to pay for infrequent expenses.
For an FDIC-guaranteed or NCUA-guaranteed account.
A bank or credit union money market account is guaranteed. The FDIC insures money market accounts for banks, and the NCUA insures money market accounts for credit unions, in both cases up to $250,000. So, even if, let’s say, you pull up to your credit union or bank one fine morning only to discover it’s unexpectedly shut down and closed its doors for good—don’t worry, you’ll still get your money market account balance back, up to that $250,000 amount.