Money market accounts are an excellent option for earning interest while keeping your money accessible. These accounts allow you to spend whenever you need to, typically with a debit card or checkbook, and they often pay more than savings accounts.
If you have a significant amount in savings or if you plan to leave the money untouched, it’s critical to find the best money market rates possible. When you use a money market for something like an emergency fund, you might deposit a meaningful amount—and you’ll hopefully never use that money. As a result, it’s worth finding an account that rewards you while making it easy to spend.
The chart below shows the average money market rates from 2009 through today, pertaining to non-jumbo deposits.
So, how do you maximize your earnings? People often choose to open money market accounts through their "non-bank" financial institutions—such as a brokerage account—because the yields are often much more than traditional banks, but these depositors sacrifice the security of FDIC insurance when doing so. The tips below help you earn as much as possible from a money market account from a bank.
Compare Bank Offerings
Check offerings at several banks, and pay attention to account features as well as interest rates. Every bank handles money market accounts differently, and a quick comparison can help you find the best account. Check online banks, local credit unions, and small regional banks. Megabanks may be worth a look, but they typically don’t have the best rates.
Interest rates: The rate you earn may be the most important factor in choosing an account. No matter how much you deposit, the rate determines how quickly your account grows. That’s important since inflation can eat away at your savings over time. Compare the APY quoted at each bank, which includes the interest rate as well as compounding in your account.
Money market, savings, or CDs? Compare all the options to verify that a money market account is your best option. At some banks, a savings account is your best bet. For example, Ally Bank pays a higher APY on savings accounts than money market accounts. But Capital One 360 pays more on money market accounts than on savings deposits. That said, Ally bank offers liquid CDs that pay even more than their savings account—so you need to look at the pros and cons of each option.
Mind the maximum: Some banks allow you to open a money market account with any amount, but they set limits on how much money can earn the advertised rate. For many savers, that’s not a problem, as limits maybe $50,000 or more. Other banks take the opposite approach, paying you more if you deposit more (see below).
Check guarantees: Switching banks can be a pain. If you’re choosing an account based on interest rates alone, find a bank that will continue to pay competitive rates. A 12-month rate guarantee (or similar) helps ensure that you won’t waste time—and lose out on interest earnings—moving money frequently. Alternatively, pick a bank that consistently pays decent rates, even if they’re not always the highest.
Local banks and credit unions play a crucial role in local economies, but online banks typically have the best money market rates. They also tend to offer accounts with no minimum opening requirements and no monthly fees. Fees can eat into any interest you earn in your account, effectively lowering the amount you earn (and keep).
Some banks pay the best rates on large account balances. If you can combine money from multiple accounts and deposit more into a money market account, you may significantly improve your earnings. For example, Northpointe Bank pays a modest interest rate on as little as $1,000. But if you deposit $25,000 into your money market account, you can earn ten times as much. Capital One 360 offers its best rate with an account balance above $10,000. If you’re near one of those thresholds, it may make sense to transfer funds from a checking or savings account to get over the hurdle.
Before using a money market account, get familiar with your bank’s rules.
One of the biggest surprises for money market account customers is the transaction limit. Federal law limits certain transfers and withdrawals out of your account to six per month. That’s fine in many cases, such as when you use your account for an emergency fund. Plus, withdrawals from an ATM or teller typically don’t count toward your limit. But if you intend to use your debit card frequently, a money market account might not be your best option.
If you exceed six transfers per month, your bank may charge fees or convert your account to another type of account. That may lead to reduced interest earnings, so planning is essential when you anticipate making withdrawals.
Another potential problem is a limit on how much you can transfer out each day or month. If you have significant assets, you might not be able to just zap money back and forth in large chunks. Ask about both incoming and outgoing transfer limits, and remember that low daily limits may require you to make more than six transfers in a month to get the money you need.