Introduction to Money Market Savings Accounts

First Service Credit Union
8/1/2018 12:00:00 AM - 5 min. read

Your Complete Guide toRetirement Planning

According to the Federal Reserve, nearly half of American adults are underprepared for an emergency. Roughly 40% would struggle to cover an unexpected $400 expense. Now is a good time to ask yourself whether you could afford a sudden car repair or broken home appliance.

Having money you can easily access at any time is a key to preparing for a more secure financial future. We always recommend keeping an emergency fund with at least $1,000 that you can count on in the event of a crisis. We'll explain below why a money market savings account is the ideal option for your family's emergency fund.

 

What Is a Money Market Savings Account?

Simply put, a money market savings account is a specific type of savings account than earns higher interest than a standard savings account can offer. While it functions similarly to other accounts you may already have, it does have several advantages. If you haven't considered opening one before, here are a few reasons why you should.

Higher Dividends

When it comes to the advantages of a money market savings account, the greatest tends to be higher dividends. Of course, different financial institutions set different rates across their account types, but in most cases, money market accounts offer significantly higher earnings than others a bank or credit union may offer.

To give you some idea about the dividends you might expect, you can see our current consumer money market savings rates below:

Balance Dividend Rate Annual Percentage Yield (APY)9
$2,500.00 to $24,999.99 0.20% 0.20%
$25,000.00 to $49,999.99 0.30% 0.30%
$50,000.00 to $99,999.99 0.35% 0.35%
$100,000.00 to $249,999.99 0.40% 0.40%
$250,000.00 and above 0.49% 0.50%

 

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Pro-Tip: If you are a business owner, you should consider setting up your organization's rainy-day fund in a dividend-earning business money market account that will continue earning while you save.

Easy Access to Your Money

Some account types have limits on how frequently you can deposit and withdraw funds and might even restrict how much you are able to access. At First Service, our money market savings account offers unlimited withdrawals, check-writing privileges, and can even be used as overdraft protection.

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Pro-Tip: Our money market savings accounts make great emergency funds because you can easily transfer money from your account anytime with digital banking.

Monthly Fees

When considering different account types, it’s always wise to look at the monthly fees and requirements for having them waived. At First Service, our money market savings account has no monthly fee as long as you maintain a minimum balance of $2,500.

Naturally, if you have doubts about your ability to maintain this balance, it might make sense to set up a standard savings account so you can build your savings without having to worry about monthly fees. The drawback is that you would sacrifice the dividends you would have received by placing your funds in money market savings account.

Minimum Balance Requirements

Some money market savings accounts do require that the account maintains a certain balance. Fortunately, they also tend to offer higher dividend rates as you increase your balance. To ensure that you are able to make the most of a money market account, it’s important to calculate whether the dividends you earn will outweigh a monthly fee, if there is one.

Low Risk

Many people base their entire financial strategy on the phrase “high risk, high reward.” For the more risk-averse among us, money market savings accounts are a low-risk way to put your money to work. You will still earn dividends – especially on higher balances – without assuming the same level of risk you might experience when playing the market. Remember, as long as you’re putting your savings in a chartered bank or credit union, your money will be insured up to $250,000.

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Pro-Tip: If you’re looking to build a balanced portfolio, money market savings accounts are an essential tool. Rather than tying up all your money in the market where it may be hard to access, you should work with your financial advisor to determine an appropriate amount to keep in a high-yield, easily-accessible money market savings account.

 

Money Market Savings vs Money Market Mutual Funds

You may have heard of a different type of account called a money market mutual fund. Even though they have a similar name, money market savings accounts and money market mutual funds are two very different things. This type of mutual fund is an investment product that relies on cash securities, including CDs and U.S. Treasuries.

 

Choosing the Right Account

As you can see, there are several advantages that make money market savings accounts a wise option for anyone looking to build savings securely. If you’re thinking about opening one of these accounts, there are several things you should consider:

  • How much will I earn?
  • How will I access my money?
    • How difficult is it?
  • How much will my account cost?
    • If there are fees, do my dividends cover the expense?
  • Is there a minimum balance?

It’s important to think about your financial accounts holistically. If you only consider the rate, for example, you may end up putting your money into a bank that makes it difficult to access when you need it.

Our recommendation is to consider not only the money market savings account itself, but also to look at all your financial needs. For each bank or credit union you consider, weigh the pros and cons of establishing your full banking relationship.

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Tips for Finding a Financial Home

Choosing where to do your banking is not a decision to be taken lightly. There are many things to consider, so let’s start by determining what matters to you. Are you interested in finding a local institution that serves your community’s unique needs better than an outsider might? Do you want a larger institution that has branches and ATMs all over the country? Does the institution you’re considering offer all the products and services you need?

There are a lot of misconceptions about credit unions out there, but there is also tremendous value in banking in a not-for-profit institution as they have more freedom to give back to their members. At First Service, our team of dedicated financial professionals is committed to providing financial products and services that enhance our members’ lives. We’re proud to have served the Houston area for over 40 years and look forward to helping you and your family reach your financial goals.

 

[9] Money Market - Dividends: APY = Annual Percentage Yield. APYs are accurate as of 10/19/2020 and subject to change. Must maintain a minimum balance of $2,500 to avoid a monthly service fee. Fees may reduce earnings.