How to Open a Money Market Account

A money market account is a combination checking and savings account. Your bank invests your deposited money for you, and seeks to earn a return similar to what can be earned in various markets. Such accounts have limited check-writing and withdrawal privileges.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Internet Access
• Bank Account
• Computers
• Personal Financial Software

1. Shop for the best terms and yields available for money market deposit accounts, or MMDAs. Web sites such as bankrate.com provide the names of banks and credit unions that offer the best deals.

2. Decide what features are important to you. Different banks offer different terms. Most limit you to three checking transactions and six withdrawals monthly.

3. Discover what fees are charged to account holders who exceed those limits.

4. Find out what the minimum account balance is. Most banks require that you keep $500 to $2,500 in the account at all times. Ask what the penalties are if your account drops below the limit.

5. Call several banks that seem to meet your requirements, and ask them to mail you full details as well as application forms. Some banks will allow you to open an account by mail. If you already have an account with the bank, you might be able to open an MMDA by phone.

6. Make sure the money market account is FDIC insured.

7. Consider using the interest you earn for emergencies or paying off credit card debt.

Tips & Warnings

• Consider opening an account where you currently bank. The bank might offer special perks to existing customers.
• If you're in a high state tax bracket, consider a U.S. Treasury money market. Its yield is slightly less than the general fund, but it's state-tax-free.
• If you're in high state and federal tax brackets, consider a municipal money market fund. It has a relatively low yield but is completely tax-free.
• Read the fine print. Ensure that the rate you were quoted is not a short-term or introductory rate.
• If you're putting a lot of money into a money market account, consult your accountant to minimize tax consequences and maximize income.
• Store your account disclosure and documentation in a safe place.