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.”