Savings accounts aren’t the only way to earn interest on your money. If you don’t know much about money market accounts, they are one of the most common savings options. How does a money-market account work?
Opening a money market account is easy; most accounts can be opened in minutes. You need to provide your personal information and make an initial deposit. Some banks have minimum deposit and balance requirements, which vary from one bank to the next.
Many banks, including CIT Bank, offer the convenience of opening an account online and managing it from anywhere.
Many banks and credit unions offer a money market account, which allows you to store your funds safely while still earning interest. Money market accounts combine the most delicate features of both savings and checking accounts.
What Is Money Market Account?
A money market account pays more interest than a regular savings account. Minimum balance requirements for money market accounts are often higher.
sA money market account is a hybrid account that often combines the best features of both savings and checking accounts. You can earn interest with a high-yield savings bank account, and many money market accounts also come with a debit card or check-writing privileges.
You can grow your money faster with money market accounts without worrying about uncertain investment options. Your funds will be protected in case of bank failure by being FDIC-insured for up to $250,000 per eligible money market account.
Money market accounts are not intended to be used for daily spending. However, they offer flexibility and allow you to access funds when needed. They also have federal transaction limits.
How Money Market Account Works
Money market accounts function similarly to other deposit accounts, such as savings or checking accounts. Customers can earn interest by depositing funds into a money market account.
Money market account interest is typically compounded daily and paid monthly. You can access the money in your money market account whenever you need it without spending a withdrawal penalty.
You can get money market accounts from brick-and-mortar and credit union banks and as much online banking. Online banks may provide more excellent rates since they have lesser overhead than traditional banks.
- Transaction Limits on Money Market Accounts
- Regulation D has meant that money market accounts can only make six withdrawals or transfers per month (or each statement cycle).
- Purchases of debit cards
- Transfers from one account into another
In April 2020, the Federal Reserve issued an interim final rule that would suspend Regulation D’s limit on monthly withdrawals from money market accounts. This was in response to the COVID-19 crisis. Banks and credit unions might still charge a fee if the standard monthly limit is exceeded.
Money Market Account vs. Savings Account (Their differences)
One significant difference between a savings and money market account is that you can access your funds. This is reflected in the inclusion of an ATM card for money market accounts. Although you can access your savings account at an ATM using your debit card from your checking account, it does not come with its card, and a savings account cannot be linked to a check.
Rates are another big difference. MMAs are often able to earn higher interest rates than savings account accounts. Because their rates are so high, banks often label their money market accounts “high-yield” as they earn higher interest rates. However, this may not be the case for all banks. The account balances of money market accounts often determine how much they earn, with higher balances typically earning better rates.
Money market accounts might have higher minimum deposit requirements than savings accounts. Although this is not always true, you should verify the amount before opening an account. It is not a good idea to set up an account and find out that opening costs at least $10,000.
Don’t worry! You don’t have to worry about minimums being so high. Discover Bank has a minimum money market account of $2,500, while PNC Bank sets its minimum MMA deposit at $100.
The pros of money market funds
A great place to park money
The money market can provide a grand haven when the volatile stock market and investors don’t know where to invest their money. Why? Money market funds and accounts are riskier than stock and bond accounts.
This is because funds of this type invest in low-risk assets such as certificates or deposits (CDs), Treasury bills (T-bills), and short-term paper. The money market is a good investment option, as it can provide a single-digit return to investors, which can be attractive in a down market.
Liquidity is not usually an issue
Money market funds do not invest in low-volume securities or a small following. They trade primarily in securities and entities that are highly sought-after (e.g., T-bills). They are more liquid so investors can purchase and sell them relatively quickly. This is in contrast to shares of a small-cap Chinese biotech firm.
While these shares might be liquid in some cases, they are unlikely to reach a large audience. If the market was in a tailspin, getting into or out of these investments could be challenging.
Money market investing can make someone poorer over time because the money they earn may not keep up with rising living costs.
The Cons Of Money Market Funds
Let’s discuss the cons of having your money in a money-market account.
- Purchasing Power Can Suffer
An investor earning a 3% return on their money-market account but seeing inflation at 4% each year is losing their purchasing power.
- The cost of expenses can be pretty high
Even small annual fees can make a significant portion of the profits when investors earn 2% or 3.3% in a money-market account. Money market investors may find it more challenging to keep up with inflation. Fees can harm returns depending on which fund or account they are in.
For example, if a person has $5,000 in a money-market account that yields 3% per year and is charged $30 for fees, it can significantly impact the total return.
- $5,000 x 3% = $150 total yield
- $150-$30 in fees = $120 profit
$30 in fees is 20% of the total yield. This is a significant deduction that significantly reduces the final profit. This amount does not include any tax liabilities that could be generated if the transaction was to occur outside of a retirement account.
- FDIC Safety Net may not be available
The Federal Deposit Insurance Corporation covers funds bought at banks for as much as $250,000 per depositor. The government doesn’t usually insure money market mutual funds.4 This means that while money market mutual fund investments can still be considered relatively safe, investors must be aware of the risk.
This insurance would cover an investor with a $20,000 money-market account with a bank. If the bank goes under, it would likely make the investor whole again. If a fund did the same, however, the investor may not be made whole again, at least not by the federal government.
The 2008 financial crisis took away a lot from the excellent reputation money market funds enjoyed. The shares of a large money market fund fell below $1.00, triggering a run on all money market funds.
The industry has been working with the Securities and Exchange Commission to implement stress tests and other measures that increase resilience and repair some of the reputational damage.
- Returns may vary
Money market funds invest in government securities and other reasonably secure investments. However, they can take risks to achieve higher yields for investors. To capture an additional tenth percent of a point of return, funds may also invest in bonds and commercial paper, which can carry more risk.
The best money market fund with the highest yield may not be the most prudent investment due to the higher risk. Don’t forget that the fund’s return in one year does not always indicate what it will generate in another year.
In some markets, the money market alternative may not be suitable. You may not be able to get the same return if you have dividends or proceeds from stock sales sent directly to your investor. Reinvesting dividends into equities could only worsen return problems in a down market.
- A lost opportunity
common stocks have a return of about 8% to 10% over time, even during recessions. An investor might miss out on a better return by investing in a money-market mutual fund that may yield only 2% to 3%. This can significantly impact an individual’s ability to build wealth.
How To Make Money On A Money Market Account
Your money earns interest when placed in a money market savings fund. The interest is money that the bank pays to you to use your money for loans to other people. However, this doesn’t mean you can’t get your cash anytime. This is how banks make their money: by selling money. It works this way:
The bank will open a money market account.
You earn interest when you deposit money and then leave it in the bank.
The bank will then lend the money to others, but they charge slightly more interest than they pay for your account.
How they keep their business afloat is determined by the difference between the interest they pay and what they charge others. The following section will examine how interest on money market accounts works.
Money market accounts have interest compounded daily and monthly. Compound interest is a way for banks to pay you interest on money they have paid in interest.
The Best Money Market Account Online
CIT Bank has one of the most prestigious money market accounts online. It also boasts the best reviews.
CIT Bank is an online banking institution that offers a variety of savings options, including a checking account, money market savings account, certificates, and deposit, as well as high-yield savings options. CIT Bank doesn’t charge monthly maintenance fees and offers competitive interest rates. However, it is not the most common online bank with a checking account.
CIT Bank, a division First-Citizens Bank & Trust Company, is a Federal Deposit Insurance Corporation member. Your deposit accounts are covered up to $250,000 for each account ownership category.
- There are no monthly fees for savings and checking accounts.
- CIT’s money markets and high-yield savings account offer great rates — and checking pays some interest.
- A minimum deposit is required for the money market account.
- There is no free ATM network. However, CIT will reimburse $30 per month in fees from other banks.
- Checking requires a high minimum deposit
How To Create A CIT Bank Money Market Account
CIT Money Market account: 3 easy steps
1. Fill in your information
Securely send your address, phone number, email, and social security number (or any other taxpayer ID).
2. Fund your account
An account must be opened with at least $100. You can send funds electronically, by mail, or by wire.
3. And you’re done
This is it. We will send you an email to confirm that your account was successfully opened.
CIT Bank Money Market Rate
Despite our overall bank rating, CIT Bank offers a Savings Builder Account with attractive rates. You can earn 1.90% APY on the account, but you will need to keep a minimum balance of $25,000 and deposit $100 monthly. You’ll only earn 0.36% APY otherwise. To open the account, you will need $100
CIT Bank Money Market Fees
CIT Bank doesn’t charge monthly fees for checking, savings, and money market accounts. Refund ATM fees up to $30 per Month – The bank doesn’t have its ATMs, so customers don’t pay additional charges for using an ATM from another bank.
CIT Bank Money Market Minimum Balance
Each bank sets its minimum deposit and the minimum amount to maintain money market accounts. The minimum opening deposit required can vary, and CIT Bank Money Market accounts are openable for as little as $100, and there is no minimum balance requirement.
Is Money Market A Good Investment?
Yes. Money market investing can be highly beneficial, especially if your cash needs are short-term and relatively secure. There are some disadvantages, such as low returns and a loss in purchasing power. Also, not all money market investments can be insured by the FDIC.
Is A Money Market Account FDIC Insured?
Yes. Money market accounts are FDIC/NCUA insured up to $250,000 per account holder, just like other deposit accounts. However, money market mutual funds are not federally insured, and these funds are offered by brokers or other entities, not banks or credit unions.
How Much Money Do You Need To Open A Money Market Account?
Money market accounts can usually be opened for $500 to $2,500 at first. Many will also require the same amount for a minimum charge, or you will have to pay maintenance fees or penalties.
How Much Interest Does A Money Market Account Earn?
Depending on your balance, the average money market rate is between 0.08% and 0.11% APY.
Which Is Better Money Market Or Savings Account?
Regular savings accounts have a lower minimum deposit or balance requirement than money market accounts, and they offer higher returns than money market funds but are less risky. Depending on how much money you have in your account, the interest rates offered by an account may differ.
Does A Money Market Account Earn Interest Monthly?
Yes, it does. Money market accounts compound interest daily or monthly, adding interest to your claim so that you can make more over time.
Is CIT Bank A Good Bank?
Yes, overall. CIT Bank is a top-rated online savings and money market account offering high rates and no fees.
Is CIT Bank Money Market Safe?
Your money is safe. CIT Bank, a division First-Citizens Bank & Trust Company, is a Federal Deposit Insurance Corporation (FDIC) member. Your deposit accounts are covered up to $250,000 for each account ownership category.
What is CIT Bank Savings Interest Rate?
With a savings account that suits your lifestyle, you can earn up to 0.80% APY 1. You only need $100 to open an account. To earn the highest interest rate, maintain a minimum balance of $25,000 and more. It would help if you made a single monthly deposit to earn the highest interest rate. You will also need to deposit $100 to open an account.
While savings and money market accounts have withdrawal limitations, money market accounts offer more flexibility when accessing money. Checks and a debit card usually accompany them.
While money market accounts have a higher APY, they can also have lower fees and fewer requirements than savings or checking accounts. To find the best APYs, and lowest fees, it’s worth looking at different money market accounts.
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