MMAs vs. CDs vs. savings
When it comes to keeping money in the bank, you have three main options:
- Certificates of deposit (CDs) offer the highest returns. In exchange, you agree to lock up your money for a period of months or years. Most CDs have penalties if you withdraw the money too early.
- Savings accounts pay low to moderate interest (called APY, or annual percentage yield). Savings accounts offer easier access to your money than CDs do, though you may be limited to six withdrawals or transfers from your account each month. These accounts often require a low or zero minimum balance, and you generally can't write checks from them.
- Money market accounts fall somewhere in between the other two. You'll be issued a debit card and have limited check-writing ability. MMAs have same withdrawal limits as savings accounts, but they tend to offer significantly higher interest. They also can require you to make a high minimum deposit and maintain a high balance.
Watch out for the smackdown
If you're looking for a place to park some savings, a money market account can be a good choice. But you must follow the rules, or — as with the other kind of MMA — you'll face a smackdown.
Many MMAs require you to keep at least $50 in the account, while others have minimum balance requirements that can be as high as $25,000. If your balance falls below the threshold, you'll be slapped with penalty fees.
As a general rule, the higher the yield, the more the bank is going require you to keep in your money market account.
Where to find top MMAs
Online banks tend to pay higher interest on MMAs and have lower minimums than more traditional banks.
As of May 2018, online bank VirtualBank was offering an MMA with a high, 2.01% APY for the first year and a minimum balance of just $100.
The trade-off is that access to your funds will be a bit restricted: Online banks have no ATM networks and no physical branches. If you can live with that, then online money market accounts can be a great deal.
At a small bank or credit union in your area, you might find the sweet spot of both convenience and decent MMA returns.
Making the choice
If saving money is your primary goal, you don’t have enough money to start a CD but also want to do better than the interest on savings accounts, then a money market account is probably the best call.
Never choose an MMA that will hit you with regular monthly fees. Those fees will only cut into your returns — which helped attract you to MMAs in the first place.