Need the best money market account? Heed these tips
by Robert Beaupre | Money Rates Columnist
By most measures, an FDIC-insured money market account is very similar to an ordinary savings account: It’s a savings vehicle designed to build wealth in virtually the safest manner possible. While money market account yields are unlikely to compete with riskier options, these accounts can offer a meaningful return, particularly if you commit to finding an account that offers competitive terms.
There are a few factors to consider when shopping for a new money market account, including the account’s rate, minimums, accessibility and perks. By doing some homework before you open an account, you can maximize the chances that you’ll find a vehicle that suits your needs for years to come.
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Here are some tips to guide you as you evaluate each facet of a prospective money market account.
1. Check the rate – twice
Assuming you’d like your savings to earn some interest each month, the rate will probably one of the main factors – if not the main factor – in choosing your money market account. But because money market rates change over time in response to economic shifts and changes at banks, it’s critical to not simply glance at the rate you see on the bank’s window or website and assume that that’s all there is to know.
Many banks offer “teaser” rates that may be well above the level of interest the bank ordinarily offers on the account. The goal here is to get customers to sign up based on that splashy introductory rate, but if you’re looking for a money market account that will excel over the long haul, the ongoing rate – the yield that you’ll get once the teaser rate expires – is much more important.
The ongoing rate may be buried in the account’s fine print, but don’t let it escape you. If you find that the ongoing rate is well below the teaser rate – and especially if it’s below the ongoing rates that other banks offer – you may want to look elsewhere.
Additionally, MoneyRates.com runs a quarterly America’s Best Rates feature that highlights savings and money market accounts that consistently offer the highest rates in their category. If a strong ongoing yield is a top priority for you – and it should be – this may be a good place to start your search.
2. Note the minimums
One way money market accounts differ from savings accounts at many banks is in the minimum opening deposit and the monthly minimum balance. Because many banks offer higher yields on their money market accounts than they do on their savings accounts, they in turn demand higher minimums with the money market account.
A quick glance at the required minimums for a given account can inform you whether it’s a good choice for your savings. If you have $100,000 to deposit, you’re likely to find you’re well above the required minimums for most money market accounts. But if you only have $1,000, you may be below the minimum for some accounts.
In those cases, it’s wisest to look elsewhere for a money market account or instead consider that bank’s savings account (assuming it has friendlier minimums). If you start an account without the funds to meet that monthly minimum balance, you’re likely to forfeit your monthly interest payments and even face monthly service charges, which can quickly erode the savings you’re trying to grow.
Also, don’t assume that the opening minimum deposit and monthly minimum balance are ever the same. Some banks offer friendly opening minimums and not-so-friendly monthly minimums. Why do they do this? You’ll know when you have to fork over that first monthly service fee.
3. Ensure sufficient access
While a money market account is a highly liquid type of vehicle – you can access your funds at virtually any time – you shouldn’t assume that it can take the place of a conventional checking account.
As mandated by the Federal Reserve’s Regulation D, money market accounts (and all other accounts classified as “savings deposits”) may only permit six or less “preauthorized, automatic or telephonic” transactions per month. That includes checks and debit-card transactions, which means these accounts aren’t ideal for funding regular purchases. Still, Regulation D permits that you can access your money via branch or ATM withdrawals as often as you’d like.
If you find these regulations too cumbersome, an interest-bearing checking account may be a good alternative to a money market account.
4. Pick your perks
As mentioned above, some money market accounts include check-writing and debit-card privileges – something ordinary savings accounts do not. But it’s important to verify that any money market account you’re considering has these perks – if you wish to have them – because they aren’t universal.
Additionally, some banks also offer reimbursements of ATM fees with their money market accounts, as well as online tools to assist you in managing your account. If you’re an online-banking aficionado, it couldn’t hurt to take a tour of a prospective bank’s website – or perhaps even read some reviews of it – before opening an account there.
A final word on money market accounts
There is one last thing you should always verify before opening any type of bank account, but thankfully this step is usually easy. Before you hand over your money, make sure that your deposits will be backed by insurance from the Federal Deposit Insurance Corporation (FDIC). FDIC insurance protects funds up to $250,000 per depositor, per institution in the event of a bank failure, and banks that carry it are required to display the FDIC emblem prominently in their branches or on their website.
Like most types of insurance, it’s something you hope to never use, but that you’ll be very glad to have if things turn for the worse. If you are looking to deposit more than $250,000 in a non-joint account -- FDIC insurance can protect joint accounts to a higher level since there are multiple account owners -- it’s wise to use multiple FDIC-insured institutions to ensure maximum coverage on your funds.
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