You probably have come across the term “Money Market Account or MMA” a lot of times now since you started putting your money in the bank. You probably don’t know what it means and what makes it different from the regular savings account. You also probably chose to keep your money in a regular savings account because (a) you were not offered an option to open an MMA account, or (b) you didn’t know what MMA is at that time so you chose something you’re secure with. This article will tell you through that if you redirect your money to an MMA, you’ll enjoy better interest rates. Here’s why.

What is a Money Market Account?

A Money Market Account is a type of savings account that probably falls between a high-yield savings account and a Certificate of Deposit (CD). It’s “probably” because it is not officially recognized that way, but a lot of its characteristics are better than a regular savings account and are a bit more flexible than a CD account.

Because MMA is just like a regular savings account, you still earn interest based on the amount of money you keep in your account, you can still make withdrawals or transfers anytime you like, and you still can get to use it as an overdraft protection account. However, what makes it better are the following: (a) you earn a higher interest rate based on your balance, (b) you have a limit of six (usually) withdrawals per month, (c) the initial and the maintaining balance requirements are higher, and (d) there are fees when you go beyond the restrictions when it comes to withdrawals of more than six (more or less) per month.

Why does a Money Market Account earn more interest rate?

Money Market Accounts earn a higher interest rate mainly because of the maintaining balance you need to meet and the limitations it has when it comes to withdrawals. First, the interest rate is compounded daily and is paid monthly. This means that if you regularly make a deposit to your MMA account, the resulting interest you get each month is higher. In comparison, some banks charge 0.60% interest on a regular savings account while an MMA has a 1.60% interest per month.
Second, because of the withdrawal limit, the bank has more funds to move around in order to allow them to get more interest for your money. This is what keeps banks alive (apart from the fees). And because of the maintaining balance requirement, your bank has a guarantee that they can invest your money in high-interest ventures. What your bank earns then is the difference between the interest rate they earn from moving your money around and the interest they pay for your account.

How do I open a Money Market Account?

Start by shopping for rates. There are differences in the interest rates paid to MMA because banks are trying to win customers over. Once you find the best rate around, check the terms and conditions tied to their MMA product(s). Take note of the maintaining balance, the withdrawal limit, and the fees you’ll get charged with in case you exceed the withdrawal limit or go below your maintaining balance. Finally, check the terms associated with the interest rate. Some banks may not be as flexible when it comes to paying higher interest rate so make it a point to know if there are special conditions you need to meet.

At this point, your mind is probably wondering whether or not you made a good decision to let your money sit around a regular savings account. If you’re thinking about that, why don’t you try calling your Banker and help you out? Remember: if you don’t ask, you don’t get.