Piggy banks are cute, but they don't pay dividends. If you're serious about growing your savings, a money market account (MMA) might be your new best friend.
An MMA comes with a few features that you won’t find with a regular savings account, like better flexibility and access to your money.* Before you rush out and open one, let’s make sure you know how a money market account works, how it differs from other types of savings accounts and how to choose the best one out there.
What is a Money Market Account
An MMA lets you earn dividends on your savings, but with a few perks you’d typically see with a checking account. For starters, you can use an ATM to make withdrawals from your money market account. While your financial institution might impose a daily withdrawal limit, you don’t have to worry about how many transactions you make at TTCU (some financial institutions do impose transaction limits, though). You can also make withdrawals through other avenues, like writing checks or making an electronic transfer in digital banking.
Is your credit union insured by the NCUA? If so, the funds in your accounts, including your money market, are insured up to $250,000. It’s always good to make sure your funds are protected.
Money Market Comparison
While money market accounts operate similarly to traditional savings accounts, there are a few key differences. For starters, most savings accounts don’t come with a checkbook. A check might seem like a museum piece, but for the occasional bill or payment it can be handy. In some instances, a money market account may offer more flexibility in accessing your money, especially if you use it to store your emergency savings.
Money market accounts typically come with higher APY** (annual percentage yield or rate of return) than regular savings accounts. They also pay dividends more regularly - monthly compared to quarterly - which helps you accrue and grow your savings more quickly.
On the flip side, money market accounts tend to come with a higher opening balance requirement (it's a $2,500 minimum opening deposit at TTCU). If you’re just starting to set aside your cash, you might have better luck finding a lower account threshold with a savings account. This can help you avoid incurring fees in case you drop below the account minimum.
Money market accounts also provide you with more flexibility than a share certificate. The rates are usually on par with each other and unlike a share certificate, a money market doesn’t have a maturation date. When you opt for a share certificate, you choose a term length (anywhere from days to months to years) during which time you can’t access your money without incurring a penalty on the earned dividends.***
What to Look For
As you begin to explore your options for a money market account, make sure it's the right one for you. There are a few criteria to consider.
First, check the minimum opening deposit or the minimum balance. An opening deposit is just like it sounds - the amount you'll need to open the new account.
A minimum balance, on the other hand, is how much money you must keep in your account to keep it active and to avoid fees. Most financial institutions determine if you’ve met the minimum by calculating an average daily balance. You'll avoid any added fees by keeping your average daily balance above the minimum balance requirement (the minimum balance requirement is $2,500 at TTCU).
Second, make sure you read the account terms carefully to avoid any unpleasant surprises. If you're not up to date on the fine print, monthly fees could eat away at your savings over time.
Third, the APY (annual percentage yield or rate of return) is an important detail to consider when choosing a money market account. In comparison, Certificates have higher APY, which means more money in your pocket. Money market accounts, on the other hand, are typically tiered to provide a higher APY for accounts with a larger account balance. And remember, you can add funds to your MMA at any time to build your savings.
Next Steps
A money market account provides a lot of flexibility when it comes to managing your money. If you want to take advantage of competitive dividend rates while also having easy access to your funds, a money market account could be the best option for your savings.
Remember: Choosing the right account is key to your financial success. A money market account offers a 'sweet spot' between security and flexibility, which makes an MMA a smart choice for savvy savers who want to grow their money faster.