Advantages to Saving Using a Money Market Account
A money market account is a type of savings account that offers higher interest rates than a regular savings account, but lower interest rates than stock market investments. Money market accounts typically allow you to make a certain number of withdrawals per month and don’t charge a fee as long as you maintain a certain minimum balance.
Video: How to Invest in a Money Market Fund
FDIC Insured Money Market Accounts
A money market savings account at a bank with Federal Deposit Insurance Corporation (FDIC) coverage is safe in the event of a bank failure. If the bank fails, the federal government will reimburse your account up to $250,000. Money market accounts at credit unions are typically insured by the National Credit Union Administration (NCUA). Check with the FDIC or the NCUA to find out if your bank is insured.
Higher Interest Rates
Interest rates on money market accounts range from 0% to 4%, with online banks offering some of the highest interest rates of all. Some banks offer tiered interest rates on money market accounts, meaning the higher your account balance, the more interest you can earn.
Minimum Balance Requirements
Money market accounts typically have minimum balance requirements. If your balance falls below the minimum requirement, you’ll be assessed a fee. You can get around the minimum balance requirement by opening an account with an online bank. Since online banks don’t have the overhead of traditional “brick-and-mortar” banks, they often eliminate balance requirements.
Withdrawal Limits
You may have maximum withdrawal limits on a money market account. Like savings accounts, federal rules allow six monthly withdrawals from a money market account. If you exceed the number of withdrawals, you will be subject to a penalty.
Paying Taxes on Interest Received
Interest received on a money market account is taxable. You must include any interest that’s credited to your account on your tax return. You can refer to your bank statement to find out the amount of interest that you’ve received during the year. At the beginning of each year, your bank will send Form 1099-INT reporting your interest income for the previous year. The Internal Revenue Service requires you to report interest income even if your bank doesn’t send you a Form 1099-INT.
Money Market Accounts vs. Stock Markets
Investing in a money market account is different from investing in the stock market. When you open a money market account, you put funds in the account and leave them there. In general, your money market balance will grow as it accrues interest as long as you don’t incur any fees.
Stocks have the potential to earn much more than money market accounts, but you also risk losing money as the price of the stock goes up and down. Stock investments are not insured by the FDIC, so if the stock price falls to zero or the company goes under, you lose your investment.
Video: Finding the Highest Money Market Rates Available
How to Open an Online Money Market Account
Visit the website of the bank where you want to open your account. Select the type of account you want to open. Enter your contact information including your name, address, date of birth, social security number, and driver’s license number.
Before entering your personal identifying information, make sure you are at the correct website. Look for a URL that begins in https://and a lock icon in your browser (either at the bottom or, in newer versions, next to the address bar) indicating you are visiting a secure website. Once your account has been established, you will need to fund it by transferring money from an existing checking or savings account. You’ll need your bank’s account and routing numbers to complete this step.
List of Money Market Accounts
The following is a list of banks where you can open a money market account. The bank’s phone number and website have been listed for your convenience.
EverBank
1-866-242-1924
www.everbank.com
FNBO Direct
1-877-370-3707
www.fnbodirect.com
HSBC Direct
1-888-404-4050
www.hsbcdirect.com
ING Direct
1-800-ING-DIRECT
www.ingdirect.com
Capital One Direct Banking
1-800-371-2844
www.capitalone.com/directbanking
MetLife Bank, NA,
1-866-BankMet
www.metlifebank.com
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