What is a Money Market Account?

A Money Market Account (MMA), is a savings or deposit account; which grows interest, paid out based on the current interest rates in the money markets, by banks and credit unions (SACCOS). The interest rates are often higher than those of the regular savings accounts and transaction accounts. It is also referred to as Money Market Deposit Account (MMDA) and provides cash withdrawal privileges, which basically entails check writing and debit card usage, allowing only a limited number of transactions each month. Money market accounts are not to be confused with money market funds, which are mutual funds, which invest in money market securities. They are of significant importance, when calculating tangible networth and may require larger minimum deposits and balances, compared to the regular savings accounts. In addition, they are great for shorter-term savings and grants easy access to one’s saved funds. Money market accounts have more benefits than a traditional checking or savings account.

Advantages of Money Market Accounts.

•          Money Market Accounts Pay Higher Interest Rates, than other types of bank accounts such the regular savings accounts or passbook savings, provided they maintain the minimum balance
•         Your Cash is Easily Accessible. The accounts can easily be accessed through ATMs, debit cards, transfers and checks. If you bank online, you can easily trace your account and can move money between accounts provided you remain within the limits.
•          Profitable/Competitive Yields. The interest rate is tiered, compounded and credited monthly, so that a money market account accrues more profit as the account balance increases.
•          Insured Deposits. Your money is insured by your bank or Sacco, meaning it’s a secure investment with minimum risk; which makes it the preferred choice by investors, as it protects against the loss of deposits.

Disadvantages of Money Market Accounts.

·         High/Steep Account Minimum Balances. Money market account holders are required to maintain a minimum balance or a larger deposit, than the regular savings accounts. You may also need to maintain a certain balance in the account, at all times, in order to earn the best interest or avoid fees. Accounts that don’t maintain this minimum, are charged a maintenance fee, however the fee can be eliminated by connecting the account to a qualifying checking account.

·         Restrictions /Limits on Withdrawals. Money market accounts can only permit a limited number of monthly withdrawals and transfers, as stipulated in the federal banking regulations. This can restrict and pose an inconvenience to a customer, who needs to make an emergency withdrawal, that will perhaps exceed the number of withdrawals allowed.

·         Fluctuating Interest Rates. Interest rates are key to money market accounts, which are dependent on the current market interest rates which are not standard and keep fluctuating.

·         Account Fees/Penalty Fees –This is usually for account opening and maintenance, transactions and other financial services which deplete the value of the account

How to Choose the Best Money Market Account.

Its very critical to conduct research when you decide to open a money market account. Among the things to consider is:

·         Assess your Needs

Look to the account details for characteristics suiting your needs best.

·         Consider the Minimum Balance/Deposit Requirements

Money Market Accounts typically require a larger minimum balance, check if it works for you or if its sustainable.

·         Consider the Annual Percentage Yield (APY)

The APY, indicates the actual rate of return that will be earned in one year, if the interest is compounded. Check whether rates are tiered based on the balance. Compound interest is added periodically to the total amount invested, increasing balance; hence each interest payment will be larger based on the higher balance.

·         Look out for Account Fees and Penalty Fees.

Find out whether the account charges penalties and extra fees such as account maintenance fees, transfer fees, monthly fees, inactive account fees and any other penalties.

·         Review any account restrictions/Withdrawal Limits

Check out for access and withdrawal options, including checks or a debit card. Check the withdrawal limits or excess withdrawal fees.

·         Access to Funds

This is typically via checks, debit card, ATMs or Mobile Banking

·         Online and Mobile Banking Features.

These features offer convenience and efficiency.

When Do You Really Need a Money Market Account?

·         If you need a secure and convenient place to keep and build your emergency fund.

·         If you are saving money towards a big purchase say a down payment on a home or a valuable asset.

·         If you need to set up sinking funds for recurring expenses, that are not part of your regular budget.

·         If you want to earn a high APY and capitalize on higher interest rates.

·         If you need the ability to write a few checks each month or make few debits; which requires you to keep high balances in your checking account.

To open an account just requires a visit to your financial institution of choice and giving your personal information as per the requirements. Once its open, you can start making deposits.

However, make sure that opening a money market account, will help you reach your financial goals and clinch your money management endeavors.