If you've been thinking about putting money into a money market deposit account, but have been procrastinating because you just aren't sure what they're all about – this article is for you. If you've got at least $500 and up to a few thousand to save, a money market deposit account is a good option that will earn interest and be insured by the FDIC. There are likely better options for larger sums of money that will earn you more interest, but money market deposit accounts are a great risk-free option for beginning investors.
Here's everything you need to know about money market deposit accounts on one page:
Who Benefits from Money Market Deposit Accounts
- People who want to earn interest on their deposit but still have instant access to their money if necessary.
- People who can maintain a minimum balance, to avoid unnecessary fees.
- People who don't plan to write more than 3 checks from their money market deposit account.
- People who hold a checking or savings account through the same bank where they will have the money market deposit account – in order to make money transfers instant and easy.
Minimum Deposit Required
- Each bank determines the minimum deposit amount for their money market accounts – typically ranging from $500 to $2,500.
How Safe are Money Market Deposit Accounts?
- Money market deposit accounts are insured by the FDIC up to $100,000 making them as safe as your traditional FDIC insured savings account.
Advantages of Money Market Accounts
- Money market deposit accounts have competitive interest rates, especially when compared to traditional savings accounts. Their rates are typically about a half a percentage point lower than Treasury bills.
- You can access your money whenever you need to, and take withdrawals in person, write checks, or transfer the money into your checking account.
- There are no limits to how many bank transfers you can make per month from a money market deposit account and a checking or savings account held at the same bank.
- You can move your money if the interest rates drop, without penalties or fees for withdrawing the money and putting it into a different investment.
- You can connect your money market deposit account to your brokerage account and purchase stocks, bonds and treasuries by phone from your money market account.
Disadvantages of Money Market Accounts
- You are limited to the number of withdrawals you can make through your account if you do the withdrawals at the bank. If you go over the specified limit, you can be charged fees.
- You have to maintain a minimum balance to avoid paying monthly account fees.
- You are limited as to how many checks you can write per month from your account. Most banks allow up to 3 checks per month and if you write more than that, there are fees.
- If you don't maintain the minimum balance, in addition to being charged a fee, sometimes your interest rate will be decreased, too.
- The interest rates on money market deposit accounts are lower than what you can earn through money market funds, because they are FDIC insured.