How long do you have to keep money in a money market account?
Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events. Beyond that, the money is essentially sitting and losing its value.
If you're using your money market account as your emergency fund, experts recommend keeping at least three to six months' worth of expenses accessible.
Yes, a money market account usually has a minimum balance. These accounts require a higher minimum balance than checking and savings accounts in exchange for paying more interest. The minimum depends on which financial institution you use, but it's typically at least $2,500.
You can withdraw your cash at any time without penalties.
Many accounts have monthly fees
Another drawback to remember is that while they have high yields, money market accounts can also come with cumbersome fees. Many banks and credit unions will impose monthly fees just for the upkeep of your account.
Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
Because you earn higher interest rates than with a traditional savings account, a money market account can be a great choice to set aside some emergency cash or start building your savings. And unlike a traditional savings account, you have more options for withdrawing your money when you want it.
The average money market rate is less than 1 percent. But let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.
Bank | APY* | Great for |
---|---|---|
EverBank | 4.30% | Savers who don't want to worry about fees or minimum opening deposits |
Redneck Bank | 4.90% | Savers who have at least $500 on hand |
Sallie Mae Bank | 4.65% | Savers who can keep $100 in their account |
UFB Direct | 5.25% | Savers who can maintain a $5,000 balance |
It might be worth investing in a money market account when you want a safe place to store your money with a higher interest rate than a checking account, while still having some liquidity features such as check writing. It's ideal for emergency funds or short-term savings goals.
Can a money market account lose money?
Money market accounts are considered safe, low-risk investments. They earn interest and allow for easy access to your money. Your balance is also FDIC-insured, so it's unlikely that you'll lose money. However, fees and interest rate changes could deplete your returns.
Interest you earn in a money market account is taxable as earned income. Any interest you earn on bank accounts, money market accounts, certificates of deposit (CDs), corporate bonds and deposited insurance dividends is taxable.
Money kept in money market accounts is accessible when you need it, without incurring a withdrawal penalty, as you might with a certificate of deposit. Money market accounts are available from brick-and-mortar banks and credit unions, as well as many online banks.
Disadvantages. Large minimum deposit requirements: Money market accounts may require a larger deposit than traditional savings accounts either to open the account or to earn the top APY. Lower yields than other bank products: Certificates of deposit (CDs) may pay a more competitive yield.
Typically, money market funds pay dividends monthly, and the earnings made in 2023 "could be significant," said Day. "But unfortunately, this is before taxes." Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%.
Both CDs and MMAs are federally insured savings accounts, so they're equally safe. Up to at least $250,000 gets insured in your name across your individually owned accounts at one bank or credit union.
A money market is a savings account that usually earns higher dividends than a traditional savings account. In this way, it's similar to a certificate. However, the funds aren't locked down for a set period of time, so you can access them as needed.
Banks and credit unions pay interest based on your money market account balance. With a higher balance, your earnings increase. And because interest earnings compound over time, your savings grow faster and faster.
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
CDs generally offer higher interest rates compared with money market accounts. Money market accounts provide access to funds and offer interest rates similar to regular savings accounts. CDs earn more interest over time but have restricted access to funds until maturity.
Is it better to put money in savings or money market account?
If you don't have a lot of money to start with, a savings account makes sense because it's possible to find accounts that don't require minimums. If you want to earn a higher APY and you can meet a higher account minimum, a money market account is a good choice.
Which Bank Gives 7% Interest Rate? Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.
Type of 1-year CD | Typical APY | Interest on $100,000 after 1 year |
---|---|---|
CDs that pay competitive rates | 5.30% | $5,300 |
CDs that pay the national average | 1.59% | $1,590 |
CDs from big brick-and-mortar banks | 0.03% | $30 |
Money Market Account
Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
Money market accounts are best for those saving for short-term goals. For example, if you're building an emergency fund, a money market account could be a good place to store that cash. But if you're saving for retirement, then a CD or retirement account would be a better fit.
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