Overview of High Yield Money Market Account in 2022
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A high yield money market account can be considered one of the great ways to create an additional income when it comes to diversifying your investment portfolio.
Even though, a money market account provides a low return on investment compared with other asset classes such as equity investment. But it is a safer place for those who can’t stomach the ride in times of uncertain and high market volatility.
There are many traditional banks, credit unions other financial institutions that offer a cross range of products of high yield money market account rates. Those traditional banks normally offer less attractive money market rates compared with other online banks in terms of attractive high-interest rates.
In this article, the following aspects will be discussed in more detail that cover: the definition of a high yield money market account, how it works, and the money market’s pros and cons, which give our readers a general knowledge and an overview of this type of high yield saving accounts.
- What is a High Yield Money Market Account?
- How Does High Yield Money Market Account work?
- Money Market Accounts (MMAs) VS Banks Saving Accounts, and Certificates of Deposit (CDs)
- Money Market Account’s Pros and Cons
Table of Contents
- High yield money market accounts are different from bank saving accounts and certificates of deposit.
- A money market account is one of the safest types of investments.
- A required certain amount of initial deposit is a must for creating a money market account.
1. What is a High Yield Money Market Account?
A high yield money market account is one type of saving account, which may offer a better return on investment in terms of providing a higher interest rate compared with other traditional brick-and-mortar banks.
Normally, online banks, credit unions, and traditional banks have several types of high-yield money market product ranges, which help customers to select the best one to suit their financial needs.
Unlike a traditional bank’s savings account, customers would require to have a certain amount of money for initial investment and other requirements that allow them to create a high yield money market account.
Importantly, money market accounts are different from certificates of deposit or other traditional banks’ savings accounts in terms of coming with checks or debit cards. For this reason, it provides a high level of flexibility and liquidity for customers by just writing a check, as you can’t see on other traditional savings accounts.
In addition, you can keep your cash as long as you want in a high-yield money market account because they do not have any other specific requirements to park your cash for a fixed period of time like a certificate of deposit (CD).
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2. How Does High Yield Money Market Account?
As I mentioned, online banks, credit unions, and traditional banks all offer high-yield money market accounts at slightly different in terms of interest rates and terms and conditions. However, Online banks may have a competitive advantage edge over other traditional banks by offering higher interest rates to the general public.
Normally, Banks or credit unions require a certain amount of initial deposit before creating a high yield money market account and maintain the balance above the required level to keep the account open. In case your balance is lower than the requirement then the banks will charge monthly fees.
Moreover, a money market account is one of the top secured and safest investments due to the fact that the federal deposit insurance corporation (FDIC) provides insurance protection for those who open high yield money market accounts at banks. In particular, FDIC may cover the insurance for up to $250,000 for a single account, while a joint account is cover up to $500,000.
In terms of interest rates, the more money you save in a high-yield money market account, which will provide you with a higher interest rate to generate more return on your investment. In case the central bank or federal reserve increases or decreases the increase rates or fund rates, your money market accounts may get impacted.
According to CNBC (2021), the average interest rate for money market accounts is around 0.07% based on an initial deposit of under $100,000. On the other hand, some online banks or other banks may offer 5 to 7 times higher than 0.07%, as it is important that you should spend time doing your homework by searching around to find the best deal possible.
What are the best money market accounts in the market?
Based on my research, and knowledge, there are the following banks and financial institutions that offer a competitive rate to open money market accounts (MMAs). Those such as:
- City Bank high yield savings, Capital One high yield savings, Marcus high yield savings ( by Goldman Sachs), Start One Credit Union, CitiBank, and CIT Bank Money Market Account.
Related reading: 6 Alternatives to Savings Accounts for Higher Investment Returns
3. Money Market Accounts VS Banks Saving Accounts, and Certificates of Deposit
Most customers have misunderstood money market accounts (MMAs), savings accounts, and Certificates of deposit (CD) are the same, but each has its own features and benefits to suit individuals’ financial needs.
MMAs normally come with checks and a debit card, which you can find in traditional savings accounts and certificates of deposit. Moreover, both MMAs and CDs are of higher better interest to compare saving accounts.
In addition, it normally requires a certain amount of larger initial deposit to create money accounts with banks. Also, you can withdraw money from saving accounts and money market accounts without paying any additional penalty fees, while with certificates of deposit, you need to pay a certain amount of penalty fees in order to get access to the fund.
Importantly, a CD account normally offers a fixed term duration in order to open an account, but MMAs and saving accounts will not require customers to sign up for a fixed term to create an account. For this reason, certificates of deposit always provide a higher interest rate than those MMAs and saving accounts.
4. Money Market Account’s Pros and Cons
We should get familiar with the definition and understand how MMAs work, as well as the distinctions between MMAs and saving accounts to give you an overview picture of this type of high-yield savings.
In this section, we will make a conclusion by analyzing the advantages and disadvantages of MMA in order to help you highlight whether it’s worth creating a high-yield money market account at banks.
- Better interest rates: it provides a higher interest rate than those traditional banks’ savings accounts, which make it more attractive to the customer, who have surplus cash and want to keep money in MMA for as long as they want.
- Provide a high level of flexibility and liquidity for customers by just writing a check or a debit card, as you can’t see on other traditional savings accounts
- Insurance protection: most money market accounts at banks are protected and insured by the federal deposit insurance corporation (FDIC). Particularly, they cover insurance damage for a single account up to $250,000, while $500,000 is the maximum amount that is covered for a joint account.
- A certain amount of initial deposit is required upon creating a high yield money market account. In this case, you would need to meet a certain requirement by depositing a fixed amount of money to create an MMA account at banks.
- Additional fees will be applied to those who are not able to meet the balance requirement. In this case, the banks will charge monthly fees if the account balance is low.
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By Jiro Nguyen.
The content is only based on the author’s personal opinion and experience. It is for informational purposes only and does not rely on as a comprehensive or substitute for professional advice.