Money market accounts are similar to savings accounts – except they tend to pay higher interest rates.
Most people new to banking generally open a checking and savings account when starting out. But banks have several savings vehicles that can earn higher interest than a basic savings and checking account, like money market accounts.
Money market accounts are like a hybrid between a checking and savings accounts that combine some of the best of both features. With money market accounts you earn high interest on your deposits, enjoy easy access to your money, and have the ability to write checks.
In the past year money market accounts have posted some very significant gains. When the Federal Reserve raises rates some banks and credit unions nudge up the rates they pay on savings and money market accounts.
Who should get a money market account?
Anyone looking for a higher interest and a safe place to store cash may benefit from a money market account. Here are a few more benefits:
- Money markets offer easy liquidity if you need your cash unlike CDs where you pay an early withdrawal penalty, unless you have a No-penalty CD.
- You want the ability to write checks.
- You want immediate access to funds in case of emergencies.
- You want a good spot to keep your emergency fund.
Is a money market account safe?
Bank money market accounts are FDIC-insured up to $250,000. The National Credit Union Administration (NCUA) fund insures money market accounts up to $250,000.
What to watch out for with Money Market Accounts
Because money market accounts are considered a savings vehicle, they are limited to six outgoing transactions per statement cycle like savings accounts. This is per federal law known as Regulation D. Under Reg D the bank or credit union can charge you a fee, close your account or convert it into a checking account if you go over the limit.
These types of transactions fall under Reg D:
- Online transfers from those accounts to a different account either at the same institution or a different one
- Transfers processed over the phone
- Automatic or preauthorized transfers, such as bill payments or any other recurring transfers
- Overdraft transfers from your savings account to your checking account
- Transfers made by check or debit card
There is a way to get around Reg D six withdrawal limits:
- Withdrawals or transfers made at ATMs
- Transactions made in person at a bank
- Withdrawals made by telephone if the check is mailed to the depositor
5 Banks with the Highest Money Market Rates
1. CIT Bank: 2.45% APY, $100 minimum deposit for interest rate
CIT Bank is an internet-based bank offering a variety of savings deposit products nationwide. CIT offers some of the highest rates to their customers due largely to the fact they are an online bank. With little overhead costs associated with brick-and-mortar banks, they can return those savings to customers. If you’re looking for a place to stash your cash and earn a better-than-average rate, CIT’s money market account is a solid choice requiring only $100 to open and no monthly maintenance fees.
2. Earn Bank: 2.41% APY, $100 minimum deposit, $10k to avoid $10 monthly fee
earn.bank is a division of Silvergate Bank, a state-chartered bank headquartered in San Diego, CA. The money market account requires $100 to open and there isn’t a minimum balance requirement to earn the high rate. However, this account requires a $10 monthly maintenance fee unless you maintain an average daily balance of $10,000. The account does not come with check-writing privileges and there is no ATM access.
3. State Farm Bank: 2.25% APY, $1,000 minimum deposit for interest rate
State Farm Bank offers a Money Market Savings account that can be opened with a minimum $1,000 deposit. If you maintain a $500 average daily balance or have a direct deposit (ACH credit) each statement cycle, the minimum balance fee is waived; otherwise it’s $10. The account comes with an ATM card that means when used for ATM withdrawals, there is no fee for withdrawals at State Farm Bank-owned ATMs, and accounts are rebated up to $10 per statement cycle when a non-State Farm Bank-owned ATM is used. Unfortunately, the 2.25% is an introductory APY for the first 12 statement cycles when opening a new consumer money market account.
4. TIAA Bank: 2.15% APY, $5,000 minimum deposit for interest rate
TIAA Bank, formerly known as EverBank, provides a full-range of banking products. TIAA’s money market account is very competitive among high-interest money market accounts. Each week they review rates from competitors and make adjustments accordingly. To be eligible for the 2.15% rate you must have a $5,000 minimum balance. There is no monthly fee with the money market account but the rate is only introductory. After a year, your rate drops according to your balance, with balances of $100,000 to $10 million earning the highest yields.
5. Capital One Money Market: 2.00% APY, $10,000 minimum deposit for interest rate
Capital One 360 money market account offers a high rate of 2.00% APY but you must have a minimum balance of $10,000. For balances below $10,000 your money market earns 0.85% APY. Customers enjoy easy access to online tools to transfer money to external bank accounts. You can setup automatic transfers to grow your savings and deposit checks via your mobile device.
The average rate on savings accounts currently sits at a meager 0.09%, according to the Federal Reserve Bank of St. Louis. Moving your money to a high rate savings account or money market account is a good financial move for 2019.
With a savings rate, or annual percentage yield, of 0.09%, a $10,000 deposit earns around $2 after one year. A 2.45% APY which is offered by CIT Bank, would earn about $245 — a decent return for little effort on your part.
Start earning more interest for your money today. Most banks open money market accounts by verifying customers through ChexSystems or Early Warning Services. If you have a negative banking history consider banks that don’t use ChexSystems to open a savings, money market or checking account.