Money Market Accounts Explained

Money market accounts are like futons: they do double duty for their owners. Just as a futon can serve as a comfy couch during the day and a restful retreat at night, a money market account can provide daily liquidity and convenience—as well as the security of higher interest rates that come from financial immobility. But there’s more to know about this smart money management tool. Let’s unfold the details and see how a money market account could benefit your finances.

Couple reviewing their Money Market Account

What Is a Money Market Account?

A money market account combines the features of checking and savings accounts. Generally, money market accounts come with check-writing abilities, are federally insured, and provide a higher rate of return compared with standard checking accounts or regular savings accounts. Money market accounts differ from money market funds. The former is a deposit account, but the latter is an investment account.

How Do Money Market Accounts Work?

Money market accounts require a minimum opening deposit. The amount varies by financial institution and may be higher than other savings account options. Opening deposits may differ from minimum balance requirements you need to maintain to qualify for higher interest rates.

Growing your money market account balance with regular deposits is encouraged, as earnings are linked to tiered rates. For example, maintaining a minimum balance of $5,000 is likely to earn a higher rate of return than a minimum balance of $500.

Frequent withdrawals are discouraged. Account holders can typically make up to six fee-free withdrawals per statement cycle using a debit card or check, or by visiting a branch location. Withdrawal limits vary by institution.

How Can a Money Market Account Benefit You?

Like other deposit accounts at federally insured financial institutions, money market accounts are protected against loss if the institution permanently closes its doors. Other benefits include:

•              Competitive interest rates that are typically higher than other savings account
•              Low-risk growth of your emergency savings fund
•              An opportunity to achieve your short-term financial goals
•              Multiple ways to access your cash balance, e.g., debit cards, checks, online banking, and in-branch transactions

Remember that even with a money market account, you should still maintain a checking account and/or savings account to support your everyday spending habits and other savings goals.

What Else Should You Consider about Money Market Accounts?

Money market accounts offer a safe place to store a cash windfall or boost your savings — if deposits stay put. Depending on your cash flow needs, this option might be less appealing if you:

•              Fail to meet the minimum opening deposit requirements
•              Do not expect to maintain the minimum balance
•              Intend to make over six withdrawals per month

Also like futons, money market accounts are not for everyone. However, if you can keep your balance high and account withdrawals to a minimum, stowing your deposits in a money market account could support your short- and long-term goals. So, if the convenience and security of a “financial futon” appeal to you, open a Credit Union of Colorado Money Market Plus account today.