Money Market Accounts: What You Need to Know

3/10/2023

When setting up your banking, you’ve probably been told to open both a checking and savings account, preferably at the same financial institution. That way, you can manage both accounts seamlessly and easily transfer between accounts through digital banking, your local branch, or call center.

While this is great advice, you’ve also likely realized quickly that your savings account earns little interest, yet you enjoy accessing your funds when needed. That’s where a money market savings account can be a game changer. It’s another type of savings account that can help you earn a bit more, and it’s just as easy to access as a regular savings account.

What Is a Money Market Account?

A money market savings account is a type of savings account that tends to offer a higher return rate on your balance than a traditional savings account, but the trade-off is that the minimum balance requirement on a money market savings is typically higher than with a traditional savings account.

But just like a traditional savings account, you can easily transfer between your checking account, make withdrawals, and deposit money anytime.

Like a traditional savings account, your funds are also federally insured up to $250,000 per depositor for each account ownership category, so your funds are protected in the event of a bank or credit union failure.

At Arkansas Federal, we offer tiered rates that increase as the balance in your account increases. So, the more you save, the more you earn.

How Does a Money Market Account Work?

As you deposit funds in a money market savings account, you can earn dividends/interest on those funds. Typically, your earnings will be higher than in a traditional savings account, compounded daily and paid monthly. Like traditional savings accounts, money market savings pay a variable interest rate, so the rate you earn on your money may fluctuate over time. It’s also common for money market savings accounts to have tiered rates, meaning higher balances are rewarded with a higher annual percentage yield (APY).

In addition to earning a higher rate of return, the money in your money market savings is accessible when you need it without incurring a withdrawal penalty fee, as you might with some accounts like a certificate of deposit.

Be sure you understand the minimum balance requirements at your financial institution to get the best return. For example, Arkansas Federal requires a minimum balance of $2,500 to be maintained. If you dip below that, a $15 monthly fee, which could lower your earnings, will be imposed.

Unlimited Withdraws, Transfer, & Deposits

In the past, money market savings accounts were limited to just six-monthly withdrawals or transfers by the Federal Reserve Board. This was non-negotiable for any financial institution. All banks and credit unions had to limit withdrawals to six per month or impose a fee to account holders.

However, due to the COVID-19 pandemic, in 2020, the Federal Reserve lifted this restriction to make it easier for consumers to get to their savings. That means there is no limit to the number of withdrawals, transfers, and deposits you’d like to make. This makes it very convenient to conduct as many transactions as you’d like through online or mobile banking, in person, or over the phone. So, you can even quickly transfer back and forth from your checking to savings—just like with a regular savings account.

However, some financial institutions may still impose a fee for excessive transactions, so check with your financial institution first. At Arkansas Federal, we currently don’t charge any fees for excessive transactions with our money market savings account.

Money Market Account vs Savings Account

As you can see, there are differences between a money market and savings account, but in a nutshell, it comes down to your minimum balance and the type of return you’d like.