Saving is essential to reaching your financial dreams. A money market account can be a great place to begin or provide a valuable stepping stone to the next stage in your savings journey. We take a closer look at how money market accounts work, what they’re best used for, and what to look for in finding a great account that matches your needs.
WHAT IS A MONEY MARKET ACCOUNT?
A money market account is a deposit account held at a bank or credit union that offers a higher interest rate on balances than most checking or savings accounts. Money market accounts allow you to earn interest at rates closer to those being offered on international money markets with none of the risks of trading in those unprotected markets.
HOW DOES A MONEY MARKET ACCOUNT WORK?
A money market account offers the same level of security for your deposits as savings or checking accounts but can limit access to your funds, usually to a maximum of six withdrawals a month. Most money market accounts also have higher minimum limits than checking or savings accounts.
This allows banks or credit unions to pay dividends at a higher annual percentage yield (APY) on money market deposits. At the same time, deposits in money market accounts are insured up to $250,000 by the federal government, meaning your money grows risk-free.
Different money market accounts are designed to meet different savings goals, from helping novice savers accumulate their first nest egg to providing a safe place for investors to deposit substantial sums of cash while also protecting from inflation.
Wasatch Credit Union offers savers a money market account with an innovative tiered interest rate structure. You’ll earn interest on every cent you deposit, with your annual percentage yield increasing above each of six tiered rate thresholds.
HOW DO YOU OPEN A MONEY MARKET ACCOUNT?
Money markets are available at most banks and credit unions. They are usually straightforward to open, especially if you already have a checking or traditional savings account at the institution. In most cases, you will simply need to provide proof of identity and residence and have enough cash to meet the minimum balance requirement of the account.
Minimum balance requirements vary widely among both banks and credit unions. Some may require you to keep deposits of $1,000 or more in place to maintain the account, while others will only pay interest above a certain threshold. Wasatch Peaks has no minimum balance for our money market account and pays interest on all deposits.
WHEN TO CONSIDER A MONEY MARKET ACCOUNT
Opening a money market account makes sense anytime you find you have money you want to set aside from your monthly budget but are not ready to commit to long-term savings or investments like a retirement account or college savings fund.
Ideally, this should be money you can do without for at least a few weeks, although most money market accounts allow you to withdraw funds up to six times a month with no penalty. On the other hand, if you do not earn regular income every month (even if it varies) or you do not budget your monthly expenses, then it is probably too early to start a money market account.
HOW TO USE A MONEY MARKET ACCOUNT
The convenience, safety, and flexibility of this type of account make it a popular choice for all sorts of savings needs. Let’s take a look at some of the most common uses:
EMERGENCY FUNDS
An emergency fund is money you keep separate from your monthly budget but is immediately available to help cover unforeseen costs like medical expenses, car and home repairs, or an unforeseen loss of income. A money market account lets you stash cash safely in an interest-bearing account to protect it from inflation, while also keeping it instantly available.
SAVINGS STARTER
Saving is always hard, especially if you are just getting started and every cent in your budget counts. The right money market account pays interest on each dollar and lets you start setting money aside for the future while keeping it close enough to use until you feel ready to commit it to a longer-term savings vehicle like a certificate of deposit or investment account.
BUDGET COOKIE JAR
If you’ve just started out on a monthly budget you can help motivate yourself by setting your excess cash aside in a money market account that you can dip into once or twice a month for a well-earned treat like a latte for the ride to work to a day out on the slopes at Powder Mountain.
SAVING FOR A GOAL
Start to build for the future by setting goals, and putting money aside regularly to help achieve your dreams. A money market account makes a safe, convenient, and accessible place to put money aside for:
- A down payment on a home or car
- A special wedding day
- A home renovation project
- Multi-pass lift tickets for you and a buddy
MONEY MARKET ACCOUNTS: WHAT TO LOOK FOR
All money market accounts offer a secure place to store your money with easy access to your cash at least six times a month. You can transfer it instantly to your checking account using online or mobile banking, or via a dedicated checkbook or debit card.
That said, you should look carefully at what the minimum balance for a money market account is and how interest dividends are paid since these vary widely between institutions.
MINIMUM BALANCE REQUIREMENTS
Choose an account with a zero or very low balance requirement if you are hoping to put away just a few dollars a month towards savings or you simply need a place to start building your emergency fund. In most cases, you will earn no or very low interest on a typical minimum balance for a money market account, but your money remains both safe and accessible.
INTEREST RATES
While it’s important to choose an account that pays interest at a high annual percentage yield and which compounds interest quarterly or monthly, you should also look carefully at how that interest is paid. Some accounts only pay interest above a certain amount. If you have a lump sum to invest, be sure your account pays a competitive rate for that balance.
TRANSACTION LIMITS
The Federal Reserve Board repealed Regulation D in April 2020 but some banks and credit unions still set a limit of 6 monthly transfers and withdrawals for money market accounts every month. Once you have reached the limit, the system does not allow more of these transactions and any transfers may be returned as unpaid.
FEES
Like all bank accounts, money market accounts can come with costs, from monthly or annual fees to charges for overdrafts or a low minimum balance. You will also need to pay a penalty if you access funds too often. Be sure your bank fees and charges are not eating into the interest you are earning on your money market deposit.
WASATCH PEAKS: YOUR SAVINGS PARTNER
At Wasatch Peaks Credit Union, we’ve been helping north Utahns for decades at every stage of their savings journeys with innovative products and great service for our members.
Whether you’re a college grad ready to lay the foundations for success, a new family looking to put down roots, or a retired couple wanting to protect a nest egg from inflation, a Wasatch Peaks Money Market Account lets you earn a higher rate without tying up your savings long term.
Our flexible Money Market Account is designed to reward both starter savers and those with a significant lump sum to protect, with:
- No minimum balance, so you earn interest on every dollar
- Tiered interest rates—the higher your balance the more you earn
- Easy access to funds, with no limits on withdrawals
- Dividend rate is computed daily and compounded monthly
Contact us today to take the next step on your savings journey or click below to learn more about opening a Wasatch Peaks Money Market Account.
