How a Money Market Savings Account Works
A money market savings account is an excellent savings tool as long as you know the rules and restrictions on its use. In general, a money market savings account provides a higher interest rate than a regular savings account. In addition, both the government and your bank will expect you to limit the use of the account and maintain it primarily as a high-balance savings.
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Interest Rates
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The interest rate you receive on a money market savings account is "tiered," that is, the rate increases as you put more money in the account. The tiers are set by the bank, such as one rate for balances between $2,500 and $5,000, with a higher rate for balances between $5,001 and $10,000. This means that if you make withdrawals, you may end up with a lower interest rate. Also, money market savings rates can vary based on a variety of economic factors, so rates may increase or decrease even if your balance remains the same.
Withdrawals
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Federal law restricts the number of withdrawals you can make on a money market account to six per statement time period. Your limit includes withdrawals at the teller window; automatic transfers, such as from one account to another; transfers via phone banking; and electronic transfers, such as electronic bill payment. However, ATM deposits or withdrawals will not count against your limit. If you go over the withdrawal limit, your bank will charge a fee.
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Checks
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With a money market savings you can write checks, just like a checking account. However, you are limited to only three checks per statement period. The benefit of the check-writing feature is that the checks do not count against the withdrawal limit.
Transfers
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Although transfers are counted against the withdrawal limit, you can still make them. For example, you can transfer to and from your money market account online or at the bank. Also, you can use your money market savings as an overdraft protection on another account as long as you keep track of the number of transfers you make.
Balance Requirements
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Most banks require a minimum balance on your money market account, and that minimum requirement may be different from bank to bank and even state to state for the same bank. In addition, some banks may offer a lower minimum balance requirement if you have other accounts. For example, Chase offers a minimum balance requirement of $1,500 in its money market savings in Florida as long as you have a regular checking account as well.
Fees and Time Limits
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Be aware that there may be fees on your money market account to use the account as overdraft protection or to conduct transactions through the ATM. In addition, the bank may charge you if you attempt to close the account within a certain time period after the opening deposit. Interest rates may also have time limits, such as an introductory rate that is higher for the first three months. You can read your account disclosures in order to find out if there are fees, early closing penalties or introductory rates.
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References
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