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Understanding Money Market Accounts

A money market account is a type of deposit account that pays interest, but it operates differently from other savings and investment accounts. You can write a limited number of checks for convenient spending, but you may need to maintain a high balance to earn interest.

Key Terms to Know

Whether you’re looking for a safe place to save money or an account that offers a competitive interest rate, familiarizing yourself with some key terms associated with money market accounts can help you avoid fees and maximize your earnings.

1. Annual Percentage Yield (APY)

The APY is a percentage that represents the amount of interest the account will yield in one year based on the interest rate and the frequency of compounding. APY includes the effect of compound interest, which is interest that’s earned from your deposits as well as interest that’s already accrued. Use APY to compare money market accounts to get a more accurate idea of your earning potential.

2. Balance Tiers

Many banks offer a variety of interest rates that correspond to a range of account balances, or balance tiers. Usually, higher balance tiers earn more interest. For example, a money market account may offer the lowest interest rate on balances under $5,000, a higher rate on balances between $5,001 and $10,000, and the most competitive interest rate on balances over $10,000.

3. Compound Interest

Your money market account balance can increase over time with the help of compound interest, or interest calculated on your deposits as well as earned interest. For instance, if you start with $100 and earn 5% APY, in the first year, you’ll earn $5 and have a balance of $105. Assuming you make no additional deposits, in the second year, you’ll earn $5.25 and have a balance of $110.25. Note that for most money market accounts, interest compounds daily or monthly.

4. Minimum Balance Requirement

You may be required to maintain a certain balance to earn a specific interest rate or avoid fees. Minimum balance requirements vary between financial institutions—some do not have a minimum balance requirement—and may change periodically.

5. Excessive Transaction Fee

If you make certain types of transactions from your money market account more than six times in a month, you may be charged a fee. This transaction limit usually applies to pre-authorized, automatic withdrawals like overdraft protection, transfers made by check or debit card, and telephone transfers and withdrawals.

Why Choose a Money Market Account?

Money market accounts provide a low-risk option for short-term savings. You have easy access to your funds and the potential to earn more interest than with a traditional savings account. Plus, deposits are safe as long as you choose a federally-insured bank or credit union.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we are dedicated to helping you find the best financial solutions. If you have any questions or need assistance with your mortgage needs, please call us at 213-732-3074. Our team of experts is here to provide you with the best service possible.

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