When it comes to earning interest on your money, savings account aren’t the only game in town. Money market accounts are one of the most popular savings options, and if you aren’t familiar with their features, it’s probably time to learn more. So how does a money market account work? Here’s a primer on this flexible savings account.
A money market account works like other bank accounts.
Money market accounts work much the same as other bank deposit accounts, like savings or checking accounts. The idea is pretty straightforward: you put money in the account and the bank pays interest on your balance periodically according to the terms of the account.
Opening a money market account is simple, too. In most cases, you just provide your personal information, make an initial deposit, and the account is ready to use. Some banks have minimum deposit amounts or minimum balance requirements, but those vary by bank.
Many banks, including Ally Bank, offer the convenience of opening and managing your account online, anytime, anywhere you have internet access.
A money market account is basically a savings account—with some checking account features.
Think of a money market account as a checking and savings account hybrid—an account that combines the features of both. That means you can sock cash away and earn a great interest rate, but you also get check-writing and debit card access. And you can add money to the account whenever you like, unlike with certificates of deposit (CDs.)
The number of checks you can write and the number of transactions allowed per statement cycle are limited, but access is still more flexible than what you get . That makes money market accounts great for things like an emergency fund or saving for a house.
Earn competitive rates with a money market account.
You know a great interest rate and the power of compound interest can make a big difference to your bottom line over time. That’s why you don’t want to keep too big a chunk of change in a low-interest-bearing account, like a checking account, if you don’t have to.
Money market accounts offer variable rates, which means they can change at any time, unlike CD rates. Which usually remain fixed for the term of the CD. Of course, that also means your rate could go down, but if you choose the right bank, you can be confident the rates will stay competitive.
Keep in mind that online banks often offer higher rates than traditional brick-and-mortar banks, so don’t count those out when you’re shopping for the best rates. Be sure to compare annual percentage yields (APYs) and don’t forget to keep an eye out for things like introductory rates, monthly maintenance fees, and minimum balance requirements.
With money market accounts, your savings balance is safe.
A key plus of putting your money in deposit accounts like money market accounts is security, as long as they’re FDIC-insured. Money market accounts at FDIC-member banks are insured by the Federal Deposit Insurance Corporation up to the maximum amount allowed by law. That means you won’t lose your money in the unlikely event of a bank failure.
And you don’t risk losing any of your principal, like you do with investments like stocks or bonds. All in all, an FDIC-insured account is about as safe a place to save as you can get.
Ally Bank Tip: Money market account sounds a lot like money market mutual fund. They are entirely different products. A money market mutual fund is an investment product that is not FDIC-insured. You can learn more about those here at Ally Invest.
Find the right money market account at the right bank.
All banks are not created equal, so be sure you’ve done some research and understand the terms of any account you’re considering before you make that opening deposit. At Ally Bank, we offer straightforward terms, competitive rates, convenient access, and great customer service. Go here to learn more about our money market account and how it fits into your savings plan.