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Retirement Planning

What is a money market account?

Money market accounts can be a secure place to save and grow your money. Learn more about how they work.
If you want to earn interest on your savings, you may want to consider opening a money market account. It can be a relatively safe place to deposit your money where you can earn more interest than a standard savings account, depending on the institution and current rate environment. Many people use them to tuck away extra money for retirement, though they can also be used to save for just about anything.

What is a money market account?

A money market account is a deposit account offered by banks and credit unions that may offer higher interest rates on your savings and often includes check-writing. For instance, you can typically write checks and use a debit card to withdraw funds from a money market account, although the account may have minimum balance requirements and limits on how frequently you can access your money each month.

Also keep in mind that a money market account is not the same thing as a money market fund, which is an investment offered by a mutual fund company.

What benefits does a money market account provide?

One of the main reasons people tuck their savings away in money market accounts is that they can yield higher interest than standard checking or regular savings accounts. The added savings can be incredibly helpful, especially later in life when planning for retirement. For example, you could use a money market account to build an emergency fund to cover unexpected medical expenses.

While the money is accessible for withdrawals, it's usually separate from your day-today checking account, and hopefully, less tempting. Keep in mind that the Federal Reserve limits withdrawals to six per month. This can, however, be beneficial if you're trying to save more for retirement, as the fee may help temper the urge to take out money.

A money market account held with a bank is insured by the Federal Deposit Insurance Company (FDIC) up to $250,000 per account, while credit unions are backed by the National Credit Union Administration (NCUA) for the same coverage amounts. When thinking about planning for your retirement, a money market account is a great option to consider because it's a reliable vehicle for the risk-averse.

Choosing a money market account

When weighing which money market account to use, you'll want to compare Annual Percentage Yields (APYs), which will show you how much interest you can earn.

Also, you'll likely want to consider the minimum deposit that's required to open the account. Different banks have different minimums (some will allow you to open an account with a small deposit).

It is important to ensure you can afford to keep the required minimum balance in the account over time. Otherwise, you'll likely have to pay a fee, which will eat into your earnings. You may also incur a fee if you withdraw money from the account more often than your bank or credit union permits.

It's also worth choosing a highly rated financial institution that is insured by the FDIC or NCUA. Make sure to research the status of any bank or credit union before opening an account.

Comparing money market accounts to other accounts

A money market account has characteristics of both a savings account and a checking account, but it has key differences. For example:

  • While a checking account may let you make unlimited transactions, a money market account will not, and if you go over the allotted number, you'll probably have to pay a fee.
  • You may be required to keep a higher minimum balance in a money market account than you would in a checking or savings account.

Money market accounts can offer a relatively secure place to save. As always, you should seek financial advice from a professional who can better address your individual needs.



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