Should I leave my money in a money market account?
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
Money market funds are a type of mutual fund that may provide higher income potential than a bank savings account and more flexibility than certificates of deposit (CDs). If you have an investment goal, you likely know when you're going to need the money and how long you'll need it to last.
Because all deposits are insured from bank failure, it is uncommon to lose money in a money market.
The Bottom Line
While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.
- Limited transactions. Some accounts limit certain transfers and withdrawals (known as convenient transactions) to six per month, so this isn't the best account for regular banking. ...
- Deposit and balance requirements. ...
- Fees. ...
- High interest rates. ...
- Flexible access. ...
- Federal insurance.
Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs). CDs are offered by financial institutions for set periods of time.
First, inflation can outpace the earnings on your savings. So even if your balance grows over the years, it could still lose relative value over time. Other downsides to consider include potential fees, variable interest rates, high minimum balance requirements and withdrawal limits.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events. Beyond that, the money is essentially sitting and losing its value.
Your money is not bound for a predetermined duration. Instead, you can withdraw funds when needed, giving you control over your finances. So, your money is never really stuck. However, MMAs sometimes charge small penalties if your balance drops below a certain amount or you make more withdrawals than agreed.
Is the Charles Schwab money market safe?
Accounts of Charles Schwab & Co., Inc. are insured by SIPC for securities and cash in the event of broker-dealer failure. The Schwab Money Funds are protected as securities by SIPC. Below is a link to information that can be shared with the client at schwab.com.
Both CDs and MMAs are federally insured savings accounts, so they're equally safe.
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
Money market accounts offer flexibility with check-writing and debit cards, savings accounts are more accessible and have lower fees, and CDs offer higher interest rates but with a commitment to keep your money locked away for a set period of time. To make the best choice, consider your financial goals and situation.
Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.
- Northern Bank Direct – 4.95% APY.
- All America Bank – 4.90% APY.
- Redneck Bank – 4.90% APY.
- First Foundation Bank – 4.90% APY.
- Sallie Mae Bank – 4.65% APY.
- Prime Alliance Bank – 4.50% APY.
- Presidential Bank – 4.37% APY.
- EverBank – 4.30% APY.
Which Bank Gives 7% Interest Rate? Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.
After years of near-zero yields, interest rates began a rewarding upward climb in 2022. In early 2024, prime money market funds yielded an average of 5.1%. You could find one-year certificates of deposit at 5.5% and high-yield savings accounts cresting 5%.
Money Market Account
Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.
Does money grow in a money market account?
Banks and credit unions pay interest based on your money market account balance. With a higher balance, your earnings increase. And because interest earnings compound over time, your savings grow faster and faster.
So, when should you choose a money market account over a high-yield savings account? Typically, money market accounts are better suited to people with larger amounts of money they're looking to save, as they'll be able to meet any minimum balance requirements and therefore avoid fees.
Money market accounts tend to pay you higher interest rates than other types of savings accounts. On the other hand, money market accounts usually limit the number of transactions you can make by check, debit card, or electronic transfer.
The Federal Deposit Insurance Corporation (FDIC), an independent government agency, insures deposit accounts—checking accounts, savings accounts, money market accounts that don't contain invested funds, and CDs, for example—at most banks and savings and loans institutions.
Taxable money market funds, also known as prime money market funds, usually offer higher yields than tax-exempt funds, but any income is subject to taxes. Prime funds invest in corporate and bank debt issued by U.S. and international entities.
