Money market accounts are often pitched as the go-to banking account solution if you want your money to work for you. These accounts pair many of the most desirable features of a checking account with the perks of a savings account. As a result, they are a perfect option if you are saving money and want to earn interest on it but don’t want to lose access to your cash.
How does a money market account work? In this blog post, the team at Resource One Credit Union will delve into how this account’s advantages work together to create a powerful banking option.
Money Market Accounts: The Basics
The easiest way to understand how a money market account works is to think of it as a hybrid between a checking account and a savings account. Since most people have had either a checking or savings account at some point in their lives—or both—you are likely already familiar with the features and limitations of these accounts.
Checking accounts are essentially spending accounts: they provide a secure way for you to store your money while retaining access to it whenever you need it, whether via debit card charges, checks, or withdrawals from ATMs or bank branches. Your money is in the bank, but it’s also easy to get to when you want to spend it.
Savings accounts are limited in their accessibility and spending capability. For instance, banks and credit unions don’t issue debit cards for savings accounts and only rarely allow members to write checks from these accounts. Withdrawals may also be limited depending on the account. Instead of spending, the purpose of these accounts is to keep your money in one place for an extended period so that it can accrue interest and earn dividends.
A money market account is a happy medium for members who can’t choose between these two accounts or don’t want to have both a checking and a savings account. With a money market account, you can save money and earn a strong interest rate while still enjoying the freedom to write checks or make purchases with a debit card. There are still some limitations to a money market account that you wouldn’t have with a traditional checking account, but the advantage is your ability to make more money from your money through interest.
To understand, “How does a money market account work?” a money market functions as a savings account with some checking and spending account features.
The Money Market Account FAQ
If you are thinking about opening a money market account with Resource One Credit Union, you probably have a few questions about what to expect from your banking experience. Here are answers to a few frequently asked questions about money market accounts and how they work:
- Do money markets pay dividends? The core value behind money market accounts is that they allow you to earn dividends (as with a savings account) while enjoying spending flexibility (as with a checking account). There are a few essentials details to understand regarding how these dividends work.
With money market accounts, R1CU requires an opening deposit of at least $2,500. This balance is also the minimum for earning interest on your money. While you have $2,500 (or more) in your account, you will always earn interest dividends on your money. The Annual Percentage Yield (APY) rate you earn will depend on how much money you have in your account. Balances between $2,500 and $24,999.99 will accrue a 1.00 percent APY rate. For larger balances, the interest rate decreases gradually. Visit our official money market accounts page for a breakdown of the dividend rates for different balances. For comparison, feel free to check what our dividend rates are for savings accounts and certain checking accounts.
As you will see, a money market account gives you the potential to earn a much higher interest rate than either a savings account or our prime spending account (the only checking account type that we offer with an APY rate).
- Are money market accounts insured? At R1CU, our money market accounts are insured by the National Credit Union Administration (NCUA) for up to $250,000 for each depositor per ownership category. “Ownership category” means that each account you have at R1CU (if you have multiple accounts) is individually insured to $250,000.
- How long does money have to stay in a money market account to earn interest? If your money market account meets the $2,500 daily balance amount, you will be earning interest on your money constantly. Since our interest rates are APY, it will take a full year for you to earn the full rate of increase. So, if you have $10,000 in your account, the 1.00 percent AYP means that you could expect to earn about $100 on that balance over a year.
- Does your money market account have a maintenance fee? When members do not meet the daily balance requirement of $2,500, we will charge a $10 monthly maintenance fee for a money market account. Members who meet or exceed that daily balance will never be charged any maintenance fees on their accounts.
- How do money market accounts compare to CDs? A certificate of deposit (CD) is another way to earn interest on your money over time. If you are choosing between money market vs. CD, note that CDs do not offer the financial flexibility of money markets, checking accounts, or even savings account. A CD is a time-bound deposit, which means that you deposit your money and commit to a set amount of time over which your bank or credit union can use your money. While a CD can give you a chance to earn a higher interest rate than any other account or security available at a banking institution (CD rates fluctuate, but our rates currently go up to 1.41 percent APY), they come with a commitment to leave your money with us for a set period.
The longer the period that you commit to, the higher the interest rate. CDs are a terrific option for some people, but if you’re drawn to money markets because of their flexibility, then a CD may not meet your expectations.
Open Your Money Market Account Today at Resource One Credit Union
Are you interested in opening a new money market account with Resource One? Our team can answer any questions that you might have and get you set up to start using your money to make money. Contact us today to get started.