High Interest Money Market Accounts (MMA)
In the world of bank deposit accounts, there is a relationship between the liquidity of an account and the interest rate your deposits earn. The interest rate is known as an annual percentage yield, or APY, and the less flexible the account, the higher the interest rate. Certificates of deposit, one of the most illiquid deposit accounts at a bank, often has the highest interest rate APY because of how inflexible it is. With a certificate of deposit, you are locking in an interest rate and will be penalized if you need to withdraw your funds before the CD matures. So where do money market accounts live in the spectrum of interest rate and liquidity? They are somewhere between a checking and a savings account.
When I talk about the spectrum of interest rate and liquidity, I’m referring to the flexibility I mentioned with the certificate of deposit. At one end you have the most liquid accounts with the worst interest rates, checking accounts, and at the other end you have the least liquid and the best interest rates, certificates of deposit.
A money market account has some of the features of a checking account and some of the features of savings accounts. They offer high yield savings account level interest rates while still letting you write checks and access an ATM, which is pretty much the best of both worlds. There are limitations though, otherwise checking accounts wouldn’t exist because everyone would use money market accounts. Many money market accounts are limited to 6 ACH electronic transfer a month and tiered interest rates. The tiered interest rates means that you need high balances to get one of the better rates out there.
The best money market account rates remain very competitive with savings account rates, so it’s usually a good bet that, as a product, it has some appeal for you if you use high yield savings accounts.
Where can you open a money market account? You can go with your local bank where you already do business or you can find one of the top MMA rates list like I referenced above and look for someone there. Remember to read the terms and conditions because they will differ from bank to bank.