What is a better investment than a money market account?
Money market accounts (MMAs) and certificates of deposit (CDs) are types of federally insured savings accounts that earn interest. But their rates and ease of access differ. CDs tend to have higher rates than money market accounts and give no access to your money until a term ends.
Money market accounts generally don't require a trip to the branch to tap into your cash. With savings accounts, you'll access funds in one of two ways. You can make an in-person visit and complete a withdrawal form, receiving a check or cash for the amount you want to withdraw.
CDs and money market accounts are equally safe. They are both insured accounts and will not lose value.
| Institution | APY | Minimum Balance |
|---|---|---|
| North American Savings Bank | 5.24% | Any amount |
| Upgrade | 5.21% | $1,000 |
| EverBank (formerly TIAA Bank) | 5.15% | Any amount |
| RBMAX | 5.15% | Any amount |
Bottom line. High-yield savings accounts and money market funds are good ways to earn a decent return on your cash and short-term savings. The key difference between the two is that high-yield savings accounts are FDIC-insured, while money market funds are not.
CDs generally offer higher interest rates compared with money market accounts. Money market accounts provide access to funds and offer interest rates similar to regular savings accounts. CDs earn more interest over time but have restricted access to funds until maturity.
Many accounts have monthly fees
Another drawback to remember is that while they have high yields, money market accounts can also come with cumbersome fees. Many banks and credit unions will impose monthly fees just for the upkeep of your account.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
If the saver is able to meet the minimum balance, doesn't anticipate needing the funds anytime soon, and is interested in a higher interest rate, a money market account is the better choice.
If inflation is rising, it could outpace the rate of return you're earning on your CDs, especially in a low interest rate environment. This means even though your savings is growing, it won't stretch as far when it's time to spend it. Notably, this is also a risk when keeping money in savings and money market accounts.
Are CDs safe if the market crashes?
Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.
CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs. CDs offer less liquidity than savings accounts, money market accounts, or checking accounts.
As of writing, no U.S.-based banks are offering a 7.00% APY on a savings account. For high-yield savings accounts — top, competitive rates are more in the 5.00% APY range. However, Landmark Credit Union currently offers a Premium Checking account with a 7.50% APY on balances up to $500.
| Savings Account | APY |
|---|---|
| CIT Bank Platinum Savings | 5.05% APY on balances of $5,000 or more; 0.25% APY on balances under $5,000 |
| Salem Five Direct eOne Savings | 5.01% APY |
| Laurel Road High Yield Savings® | 5.00% APY |
| Wealthfront Cash Account | 5.00% APY |
- Your Money Could Earn More Elsewhere. High-risk investments could provide better returns in the long run. ...
- Your Funds Are Uninsured. If you open a CD or a checking, savings or money market account from a bank, your funds are FDIC-insured. ...
- You Can Expect Fees.
Typically, money market funds pay dividends monthly, and the earnings made in 2023 "could be significant," said Day. "But unfortunately, this is before taxes." Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%.
| Bank | APY* | Great for |
|---|---|---|
| EverBank | 4.30% | Savers who don't want to worry about fees or minimum opening deposits |
| Redneck Bank | 4.90% | Savers who have at least $500 on hand |
| Sallie Mae Bank | 4.65% | Savers who can keep $100 in their account |
| UFB Direct | 5.25% | Savers who can maintain a $5,000 balance |
There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.
A money market is a savings account that usually earns higher dividends than a traditional savings account. In this way, it's similar to a certificate. However, the funds aren't locked down for a set period of time, so you can access them as needed.
What pays more than a money market account?
Certificates of deposit (CDs)
If you withdraw the money before the CD matures, expect to pay a penalty. Depending on the size of the CD, you can earn a higher APY than you would with a savings account or money market account.
Money market accounts tend to pay you higher interest rates than other types of savings accounts. On the other hand, money market accounts usually limit the number of transactions you can make by check, debit card, or electronic transfer.
Because they invest in fixed income securities, money market funds and ultra-short duration funds are subject to three main risks: interest rate risk, liquidity risk and credit risk.
The average money market rate is less than 1 percent. But let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.
I suggest a Money Market account with no penalties and full check-writing privileges for your emergency fund. We have a large emergency fund for our household in a mutual-fund company Money Market account.
