Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Money Market Accounts

Author: ScrapperMom
02.25.2009
Money Markets

Creative Commons License photo figure credit: pfala

A reader asks, “MITBeta often talks about money market accounts, can you tell me more?”

The simple answer is that a money market account offers you the flexibility to be able to write checks or make transfers, while having the benefit of earning interest like a savings account. All banks are different, but some things that make all money market accounts similar are as follows:

  • There is usually a limit to the amount of checks and/or transfers you can make. MITBeta pointed out that, with our accounts, you can only write three checks per month, but can make six transactions. So three of those can be checks, but you can also have all six be electronic if need be. Depending on the bank, this transaction limit can range from 3-6 per month.
  • The account is interest bearing, usually a higher yield than a regular savings account.
  • It typically has a higher balance requirement (typically $1000-$2500). 
  • Depending on your typical balance, your interest rate may increase.

Money market accounts are not for everyone, but if you typically have $1000+ in your checking account you might want to consider having a money market account. Our money market account is the main catchall for all our income. All monies get deposited into the money market (direct deposit of pay checks, our rental income, etc) and then MITBeta makes a couple of transfers per month to fund our regular checking account, which pays all the bills.

Money market accounts seem to be, in my opinion, a good stepping stone before opening a CD. The difference is, with a certificate of deposit (CD) your money is tied up for a certain term (6mos - 5 yrs typically) and the rate is based on the length of the term. Longer term = Higher rates.  There is also a penalty for early withdrawal. In order to make good use of the high rates available with a CD you can start a CD ladder.

Money market accounts can generate more interest for you, if you feel up to the challenge of limiting the transactions that come out of the account and also if you can carry a high enough balance. Take a look at what your current bank offers for rates and let us know. Do you think it would be a good idea to open a money market account and take advantage of higher interest rates? For more information on money market accounts you can visit “How Stuff Works.”

6 Responses to “Money Market Accounts”


  1. MITBeta Says:

    It’s important to point out the money market bank accounts are FDIC insured, just like checking accounts, so you’re money’s safe in them.

    Money market bank accounts can be confused with money market mutual funds, which are similar, but carry slightly more risk. These can be purchased through a broker or included as part of your retirement accounts.

    I’m pretty sure that the 6 transaction limit is a federal law, and not up to the banks. Most banks will impose a fee of some sort if you exceed the limit, and if you do so repeatedly you risk having your account closed.


  2. Matt Says:

    If you have an online brokerage account, you can often receive unlimited checkwriting and ATM usage while sweeping excess cash into money market funds. Any reputable institution will also provide FDIC and SIPC insurance on the accounts as well. The minimum balance requirements are much easier to clear since you have your securities in the same account as your cash.


  3. MITBeta Says:

    Matt:

    Can you give a specific example of a brokerage that offers the type of account you describe above? I can find examples of banks/brokerages that offer some of the benefits of such an account, but not all. Thanks.


  4. Matt Says:

    I use ETrade, for example. They have an account called the Complete account which gives me checking, ATM (with fee reimbursement), brokerage service and access to money markets for uninvested cash. I don’t remember the minimum balance requirements but since I use it as my primary investment account, I always had enough in there. We also have our IRAs there and a savings account at ETrade Bank which pays better than money markets (currently >2%) and is FDIC insured. I believe there are also competitors with similar service.


  5. MITBeta Says:

    Okay, Matt. I guess I misunderstood what you were saying. Let me see if I understand it now: You have multiple accounts with ETrade that are all wrapped into what they call a “Complete” account. These accounts include checking, money market, brokerage, etc.

    I checked the money market account at ETrade and it has the same rules as any other with respect to the monthly limitation on withdrawals.

    This setup is basically what we have with EverBank — minus the brokerage option. We have a checking account, several CDs, and a Money Market. All of our deposits go straight to the money market account to earn the best short term interest and then transfers get made automatically a couple of times a month so that our bills get paid on time out of the checking account.

    We also have an Electric Orange checking account with ING Direct, as well as several high interest savings accounts there. These are not money market accounts, per se, but they do have higher than normal interest rates for savings accounts.


  6. Luca Says:

    Hey this is a very interesting article! Thanks!


Trackbacks