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When Opening Multiple Money Market Accounts is a Smart Move

| MoneyRates.com Senior Financial Analyst, CFA
min read
Making a move to a higher-paying money market account could leave you with a stronger bottom line by the end of this year.

senior-man-smileAre there times when it makes sense to have more than one money market account?

Though it's not always the best thing to do, there are times when opening multiple money market accounts makes sense.

This article explains when having multiple money market accounts is a smart thing to do. Most importantly, it also offers tips on how to find the best money market accounts.

Compare money market account rates

What is a Money Market Account?

A money market account is a bank account which guarantees your balance and pays interest.

(Of course, that interest rate can change at any time.)

Money market accounts limit you to six third-party transactions per month, which means they are not a good choice for routine bill-paying. For that, you would be better off with a checking account.

A money market account sounds just like a savings account - but is it?

Money market accounts vs. savings accounts

In all of the above ways, money market accounts are pretty much the same as traditional savings accounts. Though there are technical differences in how savings and money market accounts are handled by the bank, from the customer's point of view they work pretty much the same way.

That's good, because being able to use money market accounts and savings accounts for similar things gives you more choices. That means you have more opportunity to find a higher rate.

For the purposes of this article, then, all the points about having multiple money market accounts also apply to having multiple savings accounts. The same thing goes for having a mix of savings and money market accounts.

4 Times Having Multiple Money Market Accounts is Smart

So money market accounts can be useful, but why would you need more than one?

Here are four examples of when it makes sense to have more than one money market account:

1. When your savings exceed $250,000

If you have more than $250,000 in savings, you may need to have more than one bank account to make sure it is protected. The limit on FDIC deposit insurance is $250,000 per depositor per bank.

So if you have over $250,000 at one bank, even if you split that amount between two or more accounts, it wouldn't all be covered by FDIC insurance. You would have to create separate accounts at different banks to get it all covered.

The one key exception is that IRA money counts separately toward FDIC insurance from money in a taxable account. So, if you had both an IRA and a non-IRA account at the same bank, each would be covered for up to $250,000.

2. When you have both an IRA and taxable money

By law, if you have an IRA, that money must be kept separate from your other money. So, if you have an IRA and also some savings that are not in a retirement account, you would need more than one account.

Long-term retirement savings are generally in more active investments than money market accounts. However, if you have reached an age where you plan to start taking money out of your retirement fund, a money market IRA may be a good choice for you.

Money market accounts offer immediate access to your money. But the big thing is, they can't lose money, so your savings will be there when you need to draw on them. This makes money market accounts a good choice for at least some of your IRA if you are at or near retirement age.

3. For budgeting purposes

Sometimes having different accounts for different purposes or savings goals can make it easier to keep track of your budget. If you're saving for a down payment on a house, for example, you might want to keep that account separate from one you use for more routine expenses.

Emergency funds are another example. These are pools of money people set aside to cover unexpected expenses or a loss of income.

Having your emergency fund in a separate bank account can help you stop dipping into those savings for non-emergency purposes. In this case, having that emergency fund in its own money market account could make sure it's there when you need it.

4. When jumbo money market accounts aren't paying higher rates

In the past, banks often paid more for large accounts. A so-called "jumbo" account, which was one with more than $100,000 in it, might receive a better interest rate than a smaller account.

These days, though, banks are not as interested in attracting very large accounts. That's why it has become more rare for larger accounts to pay a better interest rate.

This means there is often no incentive for keeping all your money in one account. In many cases, you can open two or more smaller money market accounts and still get the same rate you would have in a larger account.

Are there Problems with Multiple Money Market Accounts?

While there are reasons having multiple money market accounts can be a smart idea, you should also be aware of the potential drawbacks:

  • Funds may earn less overall
    If you are trying to earn a high yield, splitting your money between different banks means you'd have less money in the account with the highest interest rate. However, this is less of a problem if you can find two or more banks with similarly high yields.
  • Keeping track of balances takes time
    Another concern about splitting your money into different accounts is that this makes it harder to keep track of those accounts. You should check the bank's records against your own periodically; and the more accounts you have, the tougher that becomes.
  • More work to ensure funds are FDIC-insured
    Splitting money into multiple accounts can make it harder to make sure all your money is covered by FDIC insurance. This is especially true if you have more than one money market account at the same bank, along with other types of accounts like checking or CDs.

NOTE: Even if you split your money between different banks, you should check that they really are separate. Sometimes banks provide bank accounts under different brand names, but all the accounts for one owner would be counted together toward the FDIC insurance limit.

How to Find a Money Market Account with a High Yield

Whether you have one, two or several money market accounts, it's important to choose carefully. Finding the right account can make a big difference to how much money you have in your account by the end of the year.

Here's what to know when you go looking for a high-yield money market account:

1. Compare different banks

Money market rates offered by different banks can vary greatly. Some banks offer yields more than a full percentage point above the national average. At the other end of the scale, rates offered by the largest banks are usually well below average.

So, before opening an account, do shop around. It won't take long, but it could put you on track to earn more interest month after month.

2. Look for consistent winners

Banks can change money market rates at any time. So, there's no guarantee that, if you pick a good rate today, it will remain as good in the months ahead.

However, while rates change frequently, the same banks tend to stay at or near the head of the pack. If you choose a bank that has consistently offered strong rates over time, chances are it will continue to do so.

3. Be sure to consider online money market accounts

Online accounts consistently outperform traditional, branch-based accounts. In the latest MoneyRates.com America's Best Rates Survey, the average online money market account rate was 1.028%. The average rate for a traditional, branch-based account was 0.172%.

That difference means that the average online money market account would earn nearly six times as much as the average traditional account. So, if you are looking for a high-yield money market account, online accounts are a good place to start.

4. Avoid monthly fees

As interest rates have fallen to near zero, some banks have even started charging monthly fees on money market accounts. This may mean that you pay more in fees than you earn in interest.

It's still fairly easy to find money market accounts without monthly fees. Just make sure you check before you open an account so you don't pay a fee you don't need to.

5. Ignore short-lived promotional rates

Banks sometimes offer what are known as "teaser rates." These are special, high rates that only apply for a limited time, such as for the first month or two after you open your account. After that, the rate reverts to something lower - often much lower.

Don't base your choice of money market account on a teaser rate because it won't last long. Compare the rates being offered to customers on an ongoing basis.

6. Watch out for marketing gimmicks like balance caps

Besides teaser rates, another marketing gimmick is a balance cap. This is where a bank offers an extra high rate, but only on a certain portion of your balance.

This allows the bank to advertise what looks like a great rate, but it's not very relevant if it only applies to a limited portion of your account. This is especially true if you are opening a fairly large account.

High-Yield Money Market Accounts for 2020

If you want to open a new money market account in 2020, here is a good place to start looking: The MoneyRates.com America's Best Rates Survey found these to be the top ten money market accounts going into the year:

Rank

Bank

2019 Q4 Avg APY

1st placeFirst Internet Bank1.96%
2nd placeSallie Mae Bank1.88%
3rd place (tie)Able Banking1.85%
3rd place (tie)CIT Bank1.85%
5th placeMutual of Omaha Bank1.76%
6th placeBBVA Compass1.67%
7th placeDiscover Bank1.63%
8th placeMyBankingDirect1.33%
9th placeSynchrony Bank1.20%
10th placeTIAA Direct1.17%

Whether you need one account or multiple money market accounts, switching to one of these accounts may be the easiest way you could make more money this year.

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