How Does a Money Market Account Work?
A money market account lets you grow your savings by earning more interest while keeping your cash easily within reach.
Let’s take a closer look at how money market accounts work and when opening one might make sense for you.
SAVING WITH A MONEY MARKET ACCOUNT
Whether you’re dreaming of a Hudson Valley wedding, a home of your own, or a better car to make your winter commute easier, it all starts with savings—and a money market account is a great place to begin.
Money market accounts were originally created to allow credit unions and banks to offer higher interest rates to their members or customers than they were then allowed to pay on savings and deposit accounts.
The rules have changed somewhat since then, but money market accounts remain a safe and convenient place to grow almost any amount of money that you can set aside from your day-to-day budgeting and expenses.
That makes money market accounts a great place to turn a small nest egg into savings you can really use while keeping your cash close at hand in case of an emergency.
Here’s what you need to know about how a money market account puts your extra cash to work for you.
OPENING A MONEY MARKET ACCOUNT
When you are ready to start saving, you can open a money market account at almost any credit union or bank in the same way as you would a regular savings or checking account. Most accounts allow you to deposit and transfer money online, by phone, and in person.
Some, including GHS Federal Credit Union’s money market accounts, even offer features you would usually expect to see with a checking account, such as allowing you to access your money directly through check writing and debit card ATM withdrawals.
HIGHER DIVIDENDS
Money market accounts are unique in being able to offer higher interest rate dividends than most regular savings and checking accounts while keeping your money relatively accessible.
Money market interest rates are flexible so the exact return, or annual percentage yield (APY), your money will earn will change from month to month in line with wider market conditions. But rest assured that cash “sitting” in a money market account is actually hard at work for you.
ACCESS TO FUNDS
Like most regular savings accounts, money market accounts do have some restrictions on the number of transactions you can carry out each month. By ensuring your cash stays in your account longer, your bank or credit union is able to offer a higher interest rate.
The deposits you can make into a money market account are usually unlimited, but most credit unions and banks restrict the number of transfers or direct withdrawals out of a money market account to six per month.
This is because your credit union or bank needs to be reasonably sure they will have enough funds sitting in money market accounts to be able to lend this money to others in the form of longer-term loans.
These longer-term loans in turn attract more interest, which your bank or credit union returns to you, in part, in the form of higher interest dividends on your money market balance.
MINIMUM DEPOSITS
Similarly, in order to offer higher interest rates, most money market accounts also require you to make a higher initial deposit than you would when you open a regular savings account or to maintain a higher minimum average daily balance over time in your account.
GHS Federal Credit Union’s Money Market Savings account rewards savers who are able to maintain an average daily balance of $2,500 or more.
INTEREST RATE STRUCTURES
Different money market accounts will pay interest in different ways, depending on who they are intended to serve. Some money market accounts offer a flat interest rate on any deposit above a certain minimum level or even cap the level at which you can earn the best APY.
Other accounts offer a tiered interest rate structure that pays higher dividends as your savings increase. For example, to encourage long-term savings, interest rates on a GHS Money Market Plus account increase when your balance surpasses $10,000, $25,000, and $50,000.
FEES
Money market accounts can in some cases charge higher fees than other types of accounts. You usually have to pay a penalty if you need to withdraw or transfer funds from a money market account more than six times a month, or if you exceed the number of checks you are permitted to write on your account in a month.
As with a checking or regular savings account, you might also face overdraft or insufficient funds fees if you overdraw your account or your balance falls below a certain level.
DEPOSIT INSURANCE
The real beauty of money market accounts is that they offer significantly higher interest than most checking or regular savings accounts while offering the same level of security as regular savings account deposits.
Unlike almost any investment you can make in stocks, mutual funds, or even bonds, funds in a money market account are insured by the Federal Deposit Insurance Corporation (when held at a bank) and the National Credit Union Administration (when held at a credit union).
Funds in a money market account are fully guaranteed up to $250,000 by the federal government even if your bank or credit union collapses. That makes a money market account a great risk-free place to keep and grow your cash.
SMART SAVING: BANK VS. CREDIT UNION?
Money market accounts are widely available at both banks and credit unions. And, while APYs and minimum balances do vary, there are some good reasons why you might want to consider opening your accounts at a local credit union.
Credit unions are not-for-profit financial institutions owned collectively by their members. That means profits are shared equally among members rather than being paid out to shareholders, as is the case with commercial banks.
In general, that allows credit unions to pay higher returns on deposits. In the case of money market accounts, it means more of the money your credit union makes by lending out your money in longer-term commercial loans comes straight back to your account as interest.
Without the need to maximize profits for shareholders, credit unions can also afford to charge lower fees on accounts and in many cases can offer more generous terms on checking and debit fee services for your money market deposits.
Best of all, a credit union has a personal stake in your financial success. At GHS, you’ll join a friendly co-op committed to saving, building long-term relationships, and helping you achieve your financial goals.
GHS has been serving individuals and businesses in Broome, Chenango, and Tioga counties for more than 80 years. We offer great local knowledge, branches in Binghamton and Norwich, and high returns on our money market accounts as well as other savings products.
WHEN TO OPEN A MONEY MARKET ACCOUNT?
Opening a money market account can make sense anytime you are serious about setting money aside from your day-to-day expenses. To avoid having to tap into your deposits too often you should have a working budget and be earning enough to cover your regular expenses.
You don’t need to have a savings goal in place to start setting cash aside in a money market account, but it makes it easier to save when you have a plan in mind.
EMERGENCY FUND
An emergency fund is a great place to start. Experts recommend having at least three months of expenses set aside in case of unforeseen expenses such as car repairs, a medical emergency, or an unexpected loss of income.
A money market is a great place to start stashing cash for an emergency. You can contribute money every month or even have it automatically debited from your checking account. Your money earns great interest and is instantly available if you need it.
BUILD YOUR DREAMS
Whether you’re saving towards a college education (Go Bearcats!), an unforgettable honeymoon, or a cabin on the lake, a money market account lets you begin building towards your dreams.
Start with a GHS Money Market Savings account and step it up to our Money Market Plus account once your balance reaches $10,000. Our accounts are easy to open, simple to manage, and offer linked checking and debit card services.
GO LONG
A money market account is also a great place to start building savings you can turn into long-term wealth and security. While buying a house may be hard to imagine now, putting money aside sooner will bring your dream closer.
And while retiring one day may also be hard to imagine, the money you save now will have more time to grow. Use a GHS Money Market Account to aim high and consider transferring money into a GHS retirement account or share certificate as your balance grows.
SAVE WITH A GHS MONEY MARKET ACCOUNT
Whether you’re laying the foundations for success with an emergency fund to protect you and your family, or are ready to start saving for a major purchase or life event, a GHS money market account is a great place to start.
Our accounts offer our members a higher rate of earning than a regular savings account while keeping your money easily accessible through check writing and ATM debit card withdrawals. Enjoy flexibility, predictability, and peace of mind while preparing for the future.
Grow your investments with a secure money market account today. Click below to learn more.