Money market accounts have suddenly become astonishingly good deals
Money market accounts have suddenly become an astonishingly good deal.
We think you should have one. MMAs have become a particularly great place to stash all or part of your rainy day fund -- that three or four months worth of pay everyone should have for emergencies.
Less than three years ago our surveys found the average MMA was paying a paltry 1.2% or 1.3% annual interest.
But since the Federal Reserve began pushing interest rates up two years ago, average MMA rates have nearly tripled and you can find some banks offering 5% or more.
That rivals good deals although not the best deals -- on six-month or one-year certificates of deposit even though MMAs are much more flexible than CDs, allowing you to:
- Withdraw any amount (above the minimum balance), even close the account, any time you like, without penalty.
- Open an account with less than the $2,500, $5,000 or even $10,000 minimum deposit demanded for the highest-earning CDs.
- Pay no fees if you maintain only a small and often only a $1 -- minimum balance.
Withdraw money, usually as often as six times a month, at no charge. Some offer check-writing privileges, ATM or debit card access, others have telephone transactions, and most allow electronic fund transfers.
Add to your account at any time.
Look at what we found when we went looking for the best MMA offers:
- Domestic Bank of Cranston, R.I. offers an APY of 5.16% with a $2,500 minimum balance and you can write checks off the account.
- Zions National Bank has branches in Utah, but welcomes your business over the Internet. An online application and $1,000 will set you up with an MMA that pays an annual percentage yield (APY includes interest paid on the interest you earn) of 5.07%. Zions let you withdraw money through ATMs.
- GMAC, a strictly online bank, pays a 5.05% APY with a $500 minimum deposit which must be maintained to avoid penalties. Your money is available through checks and ATMs.
Even if you want to keep your money closer to home, we think you'll find some surprising offers from neighborhood banks.
You can find the best rates nationwide, and in your city, by searching our database of the best MMA rates from scores of banks.
There is no question that you can find rates on CDs that are more attractive than those on most MMAs, but your money is tied up for the term of the CD even if rates go higher.
Nor can you add money to most CDs. You have to save up $1,000 or whatever the CD minimum is in order to buy another certificate. If you have extra cash, you can deposit it into to your MMA and let it start earning money that day.
Banks are paying their highest rates in years, thanks to the Federal Reserve's 17 rate hikes over the past 24 months. So it's a great time for your money to work for you, but a bad time to have it tied to a long-term, locked-in rate.
Three years ago the yield on a 5-year CD averaged 3.86%. Imagine what you're losing if you bought one when you can now earn 5% on six- or nine-month CDs.
No matter which bank, or banks, you choose to handle your money, just be sure it is a member of the FDIC. That way you know that your accounts are insured up to $100,000. And be sure you are aware of the rules that govern your MMA with regard to penalties and fees.
Interest is usually compounded daily and credited monthly. And you will get a statement every month showing the added interest, your current balance and any withdrawals or deposits made during the month.
There are many ways to earn money on your savings, but if you're looking for a good interest rate and some liquidity, an MMA would be a great choice.
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