What is a money market account?

When you think about where to keep your hard-earned cash, checking and savings accounts may come to mind first. These are solid options, but money market accounts may be worth considering. They can provide a mix of safety, growth and liquidity for your savings as you plan out your financial goals. This primer can help you decide if a money market account is right for you.

We'll cover these topics:

• What is a money market account?
• How does a money market account work?
• What are the benefits of a money market account?
• What's the best way to use a money market account?
• Money market accounts vs. savings vs. CDs: Which one do you choose?
• Money market account FAQs

What is a money market account?

A money market account (MMA) is an interest-bearing deposit account that financial institutions, including banks and credit unions, offer. These accounts typically combine features of savings accounts and checking accounts. If you're saving for a future goal but also want convenience and flexibility with your money, a money market account may be right for you.

How does a money market account work?

While a money market account is like a mixture of a checking and savings account, it has some key differences and features:

• A money market account typically has a higher opening and minimum balance requirement than traditional savings accounts, often around $2,500.
• Money market accounts can include checks and debit cards with ATM access. However, these accounts may limit certain monthly transactions, like online transfers and outgoing checks.
• In exchange, financial institutions often offer a higher interest rate on money market accounts than checking and savings accounts.

What are the benefits of a money market account?

You might consider saving with a money market account for several reasons. Benefits of this account can include:

• Interest: Money market accounts may provide a higher interest rate than a traditional savings account. The interest rate is typically variable, meaning it can change over time.
• Convenience: Unlike certificates of deposit (CDs), which hold your money for a set term, money market accounts often provide more flexibility when accessing your money. You may have a debit card and access to ATMs so you can make deposits and withdrawals.
• Check-writing privileges: You may be able to write a limited number of checks from your money market account, eliminating the need to transfer funds from savings to checking.
• FDIC insurance: The Federal Deposit Insurance Corporation (FDIC) insures money market accounts held at FDIC-insured banks. Deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category.

What is the best way to use a money market account?

You may already be contributing to a traditional savings account on a monthly basis. This is a good tool to grow your initial balance and continue working towards your short-term savings goals. But a money market account may be a more effective way to meet your other savings goals, such as:

• Intermediate financial goals: Whether you're funding a wedding, prepping for vacation or saving for a car, a money market account can help you make progress. You can use a money market account alongside specialized accounts to save for a home or your child's college tuition.
• Emergency funds: If you have a rainy-day fund you'd like to grow even more, a money market account can help you save for the future without drastically changing your habits. Plus, if the account has withdrawal restrictions, you may be less likely to dip into it for other expenses, keeping your money safely tucked away for when you need it most.
• Supplemental retirement savings: In addition to contributing to your 401(k) and an individual retirement account(IRA), consider using a money market account to set aside more funds for retirement. If you've already maximized your yearly contribution to your traditional IRA, Roth IRA or 401(k), a money market account could help you continue to grow your nest egg.

Money market accounts vs. savings vs. CDs: Which one do you choose?

All three options can help you grow savings through interest growth, but the choice comes down to their particular features and perks. Let's compare:

With these differences in mind, consider an example savings scenario: Jamal has $100,000 in cash for several different goals. He wants to buy a house next year and would like to earn as much interest as possible until then. He puts $60,000 in a one-year CD with a 3% interest rate, which earns him another $1,800 for the down payment.

Jamal puts another $37,000 in a money market account with a 0.5% interest rate. It earns about $185 a year in interest. He can tap into his balance as needed with checks and transfers to his checking account. He also wants to go on vacation in a year and doesn't want to be tempted to spend that money. He puts $3,000 in a separate savings account to earn interest for this specific goal.

Overall, a money market account makes the most sense if you have a large cash balance and want to earn interest while maintaining easy access to your money through checks, transfers and ATM withdrawals.

Should you consider a money market account?

With this primer, you can likely see the value of money market accounts. But with any type of savings account, it's important to do your research. Review any requirements before you park your cash, such as minimum deposit, balance requirements, withdrawal limits and fees. Learn more about money market accounts at Citizens.