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How Does a Money Market Account Work?

Money market accounts can offer the best of both worlds, especially when times are tough, because they offer a higher rate of interest and the security of full deposit insurance. But how exactly does a money market account work? Let’s take a closer look at how to make this investment option work for you.

What Is a Money Market Account?

A money market is a deposit account similar to a savings account but designed to accumulate interest faster. It does this by restricting the number of transactions you can make, normally to six deposits or withdrawals in a given month. In return for keeping your money invested, you earn a higher annual percentage yield (APY) on your balance above a certain amount.

Money market accounts are offered by most banks and credit unions and are also fully insured by the federal government up to $250,000 per account, making them among the safest ways to invest.

Pros and Cons of Money Market Accounts

Money market accounts are a safe and convenient way to invest any amount of money, but they also have some drawbacks.

The advantages of money market accounts include:

  • Invest even on small amounts of money
  • Higher APR than checking or regular savings accounts
  • Federal deposit insurance up to $250,000 per account
  • Variable APY can rise in line with market interest rates

On the other hand, potential disadvantages of money market accounts include:

  • Limited access to your funds
  • Higher minimum balances than checking or regular savings accounts
  • APYs are lower than many riskier investment products
  • Variable APY may fall in line with market conditions

Types of Money Market Accounts

That said, not all money market accounts are the same. Banks and credit unions offer different products to meet the needs of different kinds of investors, so it’s worth shopping around to find what’s best for you. For example, Credit Union of America (CUA) offers members a choice between its Balance Boost and Performance Plus products.

Balance Boost

CUA’s Balance Boost money market account offers competitive interest rates on deposits as small as $100. Interest is paid on a tiered system, with amounts up to $2,500 earning the best rates and deposits above that earning progressively less.

Provided you have more than $2,500 invested, you’ll earn a “blended” interest rate reflecting payments at each level. Dividends are reinvested monthly.

A Balance Boost account rewards the earliest stages of savings, making it easier to start building an emergency fund or savings nest egg from scratch. It’s a great choice for young investors who need all the help they can with putting money aside from a limited budget.

Performance Plus

CUA’s Performance Plus account, by contrast, is designed to reward those able to set aside $25,000 or more, with progressively higher interest rates for more significant balances. While peak rates are lower than on the Balance Boost account, the higher deposit threshold means your dividends will be significant.

Performance Plus is designed to provide a worry-free place to grow a significant lump sum, even during a recession. It’s intended for members who have already accumulated some savings but still need their money to be relatively accessible.

Best Uses of a Money Market Account

Money market accounts offer reliable interest with almost no risk. And, while transactions are more limited than on your checking account, your money is still easily accessible to you in case of an emergency.

That makes a money market account an important part of your financial planning, but exactly how you use it will depend on your personal situation.

If you are just starting out with earning an income, a Balance Boost money market account can be a great place to put away small amounts every month. You’ll earn a little interest and in a while, you’ll have a lump sum that you can use for a major expense such as a car down payment or roll over into a college savings or retirement account.

Best of all, you’ll be able to keep money separate from your day-to-day budget, but you’ll always know that your money is available in case of an unexpected expense. That can be very useful if you are a contractor, gig worker, or freelancer who earns a variable or irregular income.

If you have saved a bit of money already, a Performance Plus money market account can also be part of a diversified portfolio of savings and investment accounts. A money market account lets you keep some of your money relatively liquid while still enjoying reliable interest and a fully guaranteed deposit—making it a good way to balance out riskier parts of your portfolio.

You’ll know you can cash out your money market account quickly and easily in case of an emergency. Alternatively, liquidating stocks, bonds, or mutual funds can take days or even weeks and will attract additional fees and taxes as well.

How to Choose a Good Money Market Account

We’ve looked at why opening a money market account can be a smart move. Now let’s consider what to look for in a good money market account:

  • Decent APY: Look for an account with an APY well above those paid on regular savings accounts at the same bank or credit union. This is easier when interest rates are higher.
  • High minimum interest-bearing balance: Look for the lowest threshold over which you will earn interest, especially if you are just starting to save.
  • Interest structure: How are interest payments structured? Will lower balances earn more or will high balances attract the best APYs? Decide which one works best for you.
  • Low fees and charges: When comparing similar accounts, look at how much each collects in monthly maintenance fees, low balance fees, and overdraft charges.
  • Maximum Number of Transactions: Most banks or credit unions still limit transactions to six per calendar month, but some allow more.
  • Online and mobile banking integration: Look for money market accounts that can be easily managed from a bank or credit union’s online or mobile banking service including direct or automated deposits, easy transfers, and fraud prevention tools.

Maximize Earning, Minimize Worry

At Credit Union of America, we know how hard it is to start saving. We want to make it easier for you to begin building your nest egg and to do more with those hard-earned savings over time. That’s why we created our Balance Boost and Performance Plus money market accounts, designed to let our members maximize earnings over time.

Our Balance Boost and Performance Plus accounts offer:

  • Competitive APYs
  • Low fees and charges
  • Innovative tiered payment structures
  • Deposits insured to $250,000 per account by the National Credit Union Administration

Click below to learn more about how a CUA money market account can bring value and security to your finances, wherever you are in your savings journey.


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