Mary Gilman

If you are looking for a secure place to put your savings while earning interest and being able to access your money easily, you may want to consider a money market account.

A money market account combines the best features of a high-yielding checkings account and a traditional savings account. A key benefit of a money market account is the funds grow at a higher rate while you have access to a debit card and check-writing privileges in order to make small purchases. 

Before learning how to open a money market account, the most important step is to know what to look for in a money market account. This will help you make the best choice when comparing offers from several financial institutions.

Choosing the best money market account

When buying a car or a house, you typically don’t buy the first one you find. You take time to compare several options and choose the most suitable option for you. The same case applies to when opening a money market account.

Financial institutions offer varied terms and rates for their money market accounts. It is helpful to compare these offers before jumping ahead and opening an account without proper research.

Most banks and credit unions promote their money market accounts on their websites. This can be helpful to browse around online while saving time visiting branches. Here are the general features to look at when comparing shop:

    Annual percentage yield (APY)

    APY is the compounded interest you will earn on your money market account deposit. When comparing financial institutions’ offers, look for the highest APYs that will translate into higher earnings.

    Financial institutions base their interest rates on the federal funds rate, among other factors. The Fed’s rate is currently at its lowest due to the COVID-19 pandemic. You may consider saving for short-term targets as you anticipate an improved rate.

    Also, consider the financial institution’s policy on tiered APYs. Some financial institutions will offer higher APYs for depositing higher balances, which can be an excellent way to accelerate your savings growth.  

    Minimum balance requirement

    Financial institutions may request you to make a deposit and maintain a minimum balance to avoid paying monthly fees. Consider the available amount you are willing to deposit and are able to maintain before opening a money market account.

    Most money market accounts have a higher minimum balance than a savings or a high-yielding checkings account.

    However, some financial institutions offer money market accounts without minimum balance requirements but may have the lowest APYs. Others require you to maintain between $500 and $2,500 in your account. Look for a low or no minimum balance account to avoid monthly charges but maintain high balances to enjoy high-interest rates.

    Withdrawals options

    Withdrawal options are almost similar to all institutions where you can use an ATM, debit card, and check to access funds. However, some banks impose conditions to money market account withdrawals. For example, the bank may restrict withdrawal if your account balance is below the minimum balance required or you are making a large withdrawal beyond a specific limit.

    Look for money market accounts offering several withdrawal options and with no conditions on withdrawals.  If you are to use an ATM, make sure the financial institution chosen has zero fees for ATM use and is conveniently located for easy access.

    You can also choose to open a money market account with the same institution where you have a checkings account for quick transfers between your accounts.

    The Federal Reserve’s Regulation D limits the number of transactions you can make with your money market account, often to only six transactions per month. However, this regulation is not applicable to ATM withdrawals and official checks mailed to you.

    Account fees

    Before signing up for a money market account, carefully read the disclosure statement and understand the type of fees you will be paying and what brings them on.

    Some reasons for account fees can include having funds below the minimum balance requirement, out-of-network ATM withdrawals, and surpassing the federal limit of written checks and withdrawals. The fees for exceeding the six transactions usually act as a warning, but strict measures could include account closure and reporting to consumer reporting agencies.

    Other fees may include annual account service charges, stop payments, bank checks, and wire transfer charges.

    Some institutions may charge monthly maintenance fees for accounts that do not make a certain number of direct deposits per month. Carefully check for such hidden fees because there may be a disadvantage if you make one large deposit in comparison to regular monthly deposits.

    » Want to see your options? Here’s a list of the best money market accounts

    How to open a money market account

    After comparing the several offers from different financial institutions, and how each offer is suitable for your financial needs, decide on the bank or credit union with the best money market account to open. Here is a general step by step process of how to open a money market account:

      Contact the bank for requirements

      Once you choose the financial institution offering the best money market account features, call and request them to mail you an application form, a checklist of identification requirements, and full account details. You can also inquire if you are supposed to visit the bank in person, or if you can complete the application process via phone, mail, or online.

      If you already have an account with the financial institution you may not need to provide all the documents.

      Submit your application

      You can submit your money market account application online or in-person at your financial institution’s branch. Your application should capture your personal information and your choice of money market account features.

      You will indicate whether you are opening a joint money market account and also provide your partner’s personal information. You may also be required to decide whether you will be using checks or debit cards; there may be a cost involved to receive checks from your bank to use with your account.

      Depending on your savings goals, indicate the amount you are willing to deposit or transfer into your money market account. It is also important to add a beneficiary so someone can inherit your money market account deposit in case of your death.

      Provide verification documents

      Along with your application, you will submit verification documents by uploading them online or in-person at a bank branch. The bank may request all or some of the following information:

      • Personal identification documents such as a passport, social security number (SSN), and driver’s license
      • Proof of address supporting the one provided in the application and identification documents. You may need to provide the most recent utility bill, cable bill, or a lease indicating your name and address.
      • Contact information such as phone number or email address.
      • Employment and income information.

      Approval

      Your financial institution will send a notification acknowledging receipt of your application form and verification documents and request any other additional records.

      The approval process usually takes between two and five days to allow for a background check on your banking history. Most financial institutions do not check your credit score when opening an account. However, maintaining a good credit report goes a long way to improving access to credit facilities.

      Your money market account application may be rejected if you are blacklisted by ChexSystems. You may be blacklisted if you previously had unpaid balances, bounced checks, and suspected fraudulent activities.   

      Funding your money market account

      Once you open your money market account, you need to make an initial deposit. The bank or credit union may not require you to deposit funds immediately, but to avoid minimum balance fees and start earning interest, you need to fund your account as soon as possible.

      Primary funding methods

      There are several methods to deposit funds to a money market account:

      • Cash deposit – you can visit a branch and deposit cash to your new money market account or use the nearest ATM. Depositing cash through an ATM is more convenient as it saves on the time you could have visited the bank, and you can make a deposit even after working hours.
      • Check deposit – you can make a direct check deposit at your branch by writing your money market account number on the deposit slip. You can also mail a check by indicating your money market account under the “pay to the order of” instruction.
      • Direct deposit – you can advise your employer to deposit part or whole of your paycheck to your money market account. This way, you will be improving your money management skills as you will be saving first before spending.
      • Internal transfermultiple accounts with the same bank enables you to quickly transfer money from one of your accounts to your money market account without any fees.
      • Electronic transfer – you can make a direct transfer from an account with a different bank to your money market account without any paperwork. To complete an electronic transfer, you have to provide the name of your receiving bank, their ABA routing number, the type of account (in this case, a money market account), and the account number.
      • Pay through mobile or online banking – you can also deposit money through your phone or online via your computer or smartphone.

      Using your money market account

      The main reason for opening a money market account is to take advantage of the high APYs while easily accessing funds.

      Therefore, you can use your money market account to save for large, infrequent purchases such as buying a car or a home and have the liquidity when the funds are finally needed. A money market account is also suitable for saving towards an emergency fund; in case of an unexpected occurrence, you can easily withdraw the funds to assist you.

      A money market account can also be used as a sinking fund for large expenses in the future, such as a vacation or paying for your child’s tuition. If you plan to sell an asset such as a house, you will be expected to pay capital gains tax. You can save with a money market to help offset this tax without feeling the pinch.

      Final thoughts

      Before opening a money market account, compare the several features between different banks and how each will affect you to achieve your financial goals. For instance, if your target is to save as much as you can, you can have your paycheck directly deposited into your money market account. This way, you will only access your money six times a month due to the federal limits, making sure you budget your spending to avoid surpassing the limits.

      There is no restriction to the number of money market accounts you can have. Financial experts recommend maximizing FDIC insurance by spreading money market accounts between several financial institutions if you have money beyond the coverage limit of $250,000.

      Even though a money market account limits your access to money, it may not be enough if your target is to grow your capital. You may consider opening a more strict account that offers higher APYs for the money that you do not need any time soon. Therefore, if you are willing to trade liquidity for higher interest, open a certificate of deposit (CD) and earn a guaranteed interest over a particular term.

      We would like to hear from you. Leave a comment below, and let’s have a lively discussion on the topic.


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