Money Market Tingz

Rep: Thank you for calling ABC Federal Credit Union, this is Savannah speaking, how may I help you?

Member: Yes, I am looking for an account to put my funds in that’s going to earn me more than these horrible rates that you guys are advertising. I would like to use it as a retiring fund but I also want to be able to access it without a penalty if I really need it.

Rep: I’d be more than happy to assist you, Sir. Please allow me to verify you so that I can ask some further questions to get a better insight on what it is you need.

Member: Okay, no rush but Jerry Springer is coming on in 30 minutes!

Rep: *Chuckles* No problem sir. It sounds like a Money Market account would suit you best. These accounts offer you an APY as high as 1.00%, unlike our Savings accounts which will only offer you 0.10%. I’m not sure if you’re rate shopping right now but just so you know, Credit Unions will always have a much higher yield than a regular bank.

Member: Okay, and what about accessibility?

Rep: These funds are very liquid! You can either access them through a transfer in online banking, withdraw funds in person, or write up to 6 checks/month off of the Money Market account.

Member: Ok, that actually sounds really good. Can I set that up with you over the phone? I need to transfer $100,000 from my other bank to put into this account. Can you believe they were only paying my .001% for this money?!

Rep: I’ll go ahead and send you a wire transfer form and I am so glad that we could help!

Definition

A Money Market account is a safe place to keep your funds that offers various benefits and features. It is secured by the NCUA/FDIC (depending on your institution) for up to $250,000 which gives you peace of mind, unlike putting money into investments. It also offers a much higher yield on your funds, liquidity (access to funds), and check writing ability. Keep in mind that these accounts, just like a regular savings, are regulated under regulation D so you can only write 6 checks per month off of them as these count as electronic transfers.

Although Money Market accounts give you some of the best features of a checking and savings account, it does also have its pros and cons. With all of the features you get with these, you may have to give up a few others.

What is the Difference between a Money Market and a Savings account?

Savings Accounts

-Offers Lower Dividend Rates

-Has a low minimum balance requirement

Money Market:

-You can write a limited number of checks

-Offers much higher dividend rates

-Requires a much higher Minimum Deposit and average balance than a savings account.

If you are looking for a Money Market account that has a lower minimum opening deposit, be sure to shop around as there are some FI's that offer a deposit as little as $500.

The best parts of having an MMA aka Money Market Account

As previously stated, these accounts pay, sometimes, 10x the amount of a savings account. Probably even more if you shop in the right place. You can rest easy knowing that your money is safe and insured with the FDIC through a bank and the NCUA through a Credit Union.

Unlike a Savings account, the dividends compound daily. The more money you have in these accounts, the more you’ll earn. The amount you earn usually lays between that of a CD (Certificate of Deposit) and a regular savings account.

These accounts are actually very similar to checking accounts when it comes to accessibility. Some money markets even offer a debit card option, as well as, check writing capability and withdrawing cash from an ATM or teller. You can always do a simple online banking transfer if you need the money in a different account right away. The easy accessibility and competitive interest rates are what makes these accounts very unique. When comparing accounts online, you will find that nowadays rewards checking accounts and high interest checking accounts may offer the same capabilities which was definitely not the case a few years back. Sometimes, you’ll get the best bang for your buck from a money market account.

There will Always be some Cons to go with the Pros

Although the features of a Money Market can be very beneficial, there some things to keep in mind before opening one.

MMA’s usually require a very large minimum deposit/balance unlike a savings account which in most cases barely requires a minimum balance. For example, some Money Market Accounts may only be an option if you have at least $1,000 or more to put into it. If the balance falls below the required minimum, you may not get the advertised interest rate on your funds or you may even get a fee. (Always be sure to check with your FI’s policies to stay in the know on what happens if your balance falls below the threshold). This can be a huge decision maker when trying decide which institution to open a market market account with.

Although these accounts are easily accessible, there are still some transaction limitations. Just like Savings accounts, MMA’s do fall into the Regulation D pool. You can’t write more than six checks or do more than 6 debit card transactions per month on a Money Market. Some institutions even restrict you to 3 transactions before you get a fee. You can withdraw funds in person or at an ATM as often as you’d like, but I definitely would not use it as your primary means for spending.

It is truly important to do your research before opening these accounts as it may not be the best product for your needs. If you’re looking for the highest return on investment while still avoiding early withdrawal penalties, you may want to considering CD laddering. This is when you open a series of certificates that all mature at different times so you always have funds available. When looking for long term investments, it may be best to speak with a licensed financial planner to help you reach your goals.

Please keep in mind that not all Money Markets are insured by the NCUA or FDIC. These accounts can be easily confused with mutual funds in investment planning, but they are not the same thing. Be sure to check with your bank or credit union so you know what amount of your funds are covered.

Some institutions may offer a special introductory rate just to get your money in the door. USE YOUR INSTINCTS! If the rate sounds like it may be too good to be true, make sure that it is a permanent rate and not just a promotion that goes away after a certain amount of time.

Why Should I get a Money Market Account?

MMAs are a great tool to use when you need money sometime in the near future. They are especially useful when it comes to large surprise expenses. This is why it’s best this type of account to have when savings for an emergency fund, budgeting for any big payments (taxes,insurance. etc.), or even tuition.

Like I said before, this should not be the type of account to use as a primary means for spending because of the transaction limitations. If you’re looking to earn interest on a large payment before you actually pay it (i.e mortgage payment), this may be a great product to utilize.

That’s wrap on Money Market Tingz! Please remember to email it me at shanieceaxtmann@gmail.com or visit the forum if you have any questions. Be sure to check out the next post about Certificates of Deposits. :)