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Money market accounts: Are they safe?

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An excellent alternative to traditional checking or savings account is a money market account if you want to park your cash in a safe place. Money market accounts are available at various banks and credit unions and offer several advantages to savers.

According to Jaspreet Chawla, the senior vice president of savings products at Navy Federal Credit Union, a money market savings account, or MMA, is an account that can provide higher earnings than a regular savings account. It usually has tiered rates that may fluctuate on a weekly basis depending on the conditions of the money market.

According to Chawla, these options provide a simple method to earn more interest than a standard savings account, while still retaining the same benefits such as easy access to funds, check-writing capabilities, and the ability to withdraw money from an ATM.

Are money market accounts safe?

If you have a money market account with a federally insured bank or credit union, it is considered safe. However, it is important to confirm that your financial institution is a member of either the FDIC or NCUA. These organizations offer insurance for deposit accounts up to $250,000 per depositor, per insured bank, and per account category, meaning that your deposits are protected within the limit if your bank fails.

What makes a money market account unique?

Money market accounts offer a balance between savings and checking accounts. Their advantage is that they pay interest and may also come with check-writing and debit card options for convenient cash access.

Typically, you can only withdraw or transfer from a money market account six times per statement cycle. Going over this limit may result in a fee for each additional transaction (note: ATM withdrawals are not included in this limit). Additionally, your bank could convert your MMA to a checking account that does not earn interest.

According to Chawla, even though you can withdraw your funds easily, you won’t have the same merchant payment options that a traditional checking account offers. This means that you cannot use the debit card for point-of-sale transactions, and there is a chance that electronic bill payment may not be possible using your money market account.

Is a money market account the same as a money market fund?

When looking into MMA options, please note that there is a separate financial product with a similar name that is distinct from a money market account. This product is referred to as a “money market fund” or a “money market mutual fund.”

You can purchase money market funds from banks, brokerage firms, and investment fund companies. These funds are a kind of mutual fund that invests in short-term securities like U.S. Treasury bills. Although they are deemed low-risk investments, they are not guaranteed by the government.

Who should get a money market account?

If you need to earn extra money but don’t want to take risks, consider opening a money market account. It’s also helpful to divide your savings into different accounts, with the money market account holding funds that you may need to access more often.

Consider opening a money market account if you have a substantial amount of money that is not earning interest. This type of account is also an ideal option to keep your emergency funds accessible.

How much money should you keep in a money market account?

The amount of cash you should have in your MMA varies depending on your financial situation and your bank’s policies. Chawla from Navy Federal Credit Union explains that some banks require a minimum account balance in order to earn interest or qualify for better interest rates. For instance, Navy Federal mandates a minimum deposit of $2,500 for its MMA to accrue interest. However, banks such as Ally Bank and Synchrony Bank have no minimum balance requirements.

Discover Bank offers interest on all balances, but to receive the highest interest rate on a money market account, you need to maintain a minimum balance of $100,000. Chawla advises that if you cannot meet the minimum balance requirement, a money market savings account might not be the best option for you.

Suppose you can maintain the minimum balance requirement without difficulty. In that case, it may be worthwhile to compare the rates of the top money market accounts to other investment options that offer higher earning potential but also carry more risk.

One strategy could be to divide your cash, keeping a portion in a money market account and investing another portion in stocks, bonds, or other assets to potentially earn higher returns.

Before considering any investments, ensure that you have enough savings to cover three to six months of your living expenses. It is recommended to keep this emergency fund in a secure account like an MMA rather than investing it in higher-risk options. Only after reaching this goal should you explore other investment opportunities for potential growth.

Where to maximize your money market account earnings

Online banks typically offer better money market account rates as they do not have to maintain big branch networks, allowing them to pay higher yields. Similarly, credit unions also provide competitive rates.

Make sure to compare the different money market rates available and carefully examine the minimum balance requirements in order to determine which option will provide higher interest earnings.

Bottom line

Consider opening a money market account to safely and quickly increase your savings. This is especially beneficial if you have a considerable amount of cash that you want to keep accessible while earning interest.

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