Is your money safe in a money market account? Yes, if your money market account is with an FDIC-member bank. In fact, they're among the safest places you can put your savings. The FDIC (Federal Deposit Insurance Corporation) protects you against losses in the unlikely event of a bank failure.
A money market account is a specific type of bank account that often pays higher interest rates than other bank products. You generally must pay tax on the interest you receive from a money market account.
Interest Calculator for $10,000
| Rate | After 10 Years | After 30 Years |
|---|
| 0.00% | 10,000 | 10,000 |
| 0.25% | 10,253 | 10,778 |
| 0.50% | 10,511 | 11,614 |
| 0.75% | 10,776 | 12,513 |
The average money market rate is about a tenth of a percent. Say you save $10,000 in such an account; after a year, your balance would earn about 10 bucks. Put that same amount in a money market account with a 1% APY, and you would earn just over $100.
Key Takeaways. Money market investing can be very advantageous, especially if you need a short-term, relatively safe place to park cash. Some disadvantages are low returns, a loss of purchasing power and that some money market investments are not FDIC insured.
Best money market accounts & rates for January 2021
- Highest Rate: Navy Federal Credit Union - up to 0.60% APY*
- High Rate: Sallie Mae Bank - 0.55% APY.
- High Rate: Ally Bank - 0.50% APY.
- High Rate: Synchrony Bank - 0.50% APY.
- High Rate: CIT Bank - 0.50% APY.
- High Rate: First Internet Bank - 0.50% APY.
Like most deposit accounts, the rate on money market accounts has grown over the past few years, up from 0.188% APY in 2016 to 0.372% APY in January 2020. Savings account rates have also increased, but still averaged only 0.272% APY in January 2020.
How much interest can you earn on $1,000? If you're able to put away a bigger chunk of money, you'll earn more interest. Save $1,000 for a year at 0.01% APY, and you'll end up with $1,000.10. If you put the same $1,000 in a high-yield savings account, you could earn about $5 after a year.
Limited Transfers and ChecksA money market account has a major disadvantage for regular monthly bill-paying. You are allowed only six electronic transfers each month, with a maximum of three of these by debit card or check, according to Bankrate.com.
Disadvantages of a Money Market Account
- Minimums and Fees. Money market accounts often need a minimum balance to avoid a monthly service charge, which can be $12 per month or more.
- Low Interest Rate. Compared to other investments, money market accounts pay a low interest rate.
- Inflation Risk.
- Capital Risk.
Money market mutual funds can be a safe option for a recession, but they can't match the performance of stocks. Farberov says investors should consider how holding money market funds may affect overall portfolio returns in the short term and what trade-off they may be made by avoiding stocks.
For one, some people can't afford a money market account. Banks often require a minimum deposit to open the account, then a minimum balance to keep in the account. It's usually much higher than regular savings accounts. This often means $5,000, but can be up to $10,000 at some banks.
What are the advantages of a money market account?
- Safety. A nice benefit of money market accounts is that they can be low-risk savings options.
- Savings rate.
- Easy access.
- Flexibility.
Money Market Deposit AccountsThese are bank accounts that invest in very short-term corporate loans and CDs. Pros: These accounts pay higher interest than traditional savings accounts. Your money is FDIC-insured. Cons: You're limited to writing no more than three checks a month.
The U.S. Federal Reserve and terrible disasters are the two main causes of decreases in the interest rates on money market investments. Disasters lower short-term interest rates because investors take their money out of other investments, such as stock, and put it into the safest investments they can find.
The main difference between a savings account and a money market account is the access you have to your funds. MMAs often earn at higher interest rates than savings accounts. Banks often bill their money market accounts as “high-yield” accounts because their rates perform so well.
A money market account is a high-interest savings account that also shares some features with checking accounts. If you have enough cash on hand to open one, it can be a useful savings tool that allows limited access to your funds while earning more interest than a traditional savings account.
Examples of the short-term investments found in the money market are money market deposit accounts, US Treasury bills, repurchase agreements, commercial paper, negotiable certificates of deposit (called credit union share certificates by credit unions), banker's acceptances, and money market mutual funds.
The timing of a withdrawal depends on several factors including what time of day the withdrawal request is made and the institution receiving your funds, but most withdrawals take 3 or 4 business days before the requested funds are back in your bank account.
Interest for money market accounts accumulates daily, so there are 365 compounding periods for the account.
