A money market account can be a fine instrument for savings, mixed with a bit of spending. You shouldn’t be offhand or casual about timing its opening, though.
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So you’re thinking about opening a money market account, eh?
Most likely you’re interested because at least one of the numerous benefits of a money market account appeals to you. The benefits include:
Interest rates -- Money market account APYs are nearly always higher than those of checking and savings accounts.
Rate increase potential -- Due to their funding structure, money market accounts are often very quick to raise their rates when the Fed makes a move upwards.
Flexibility -- In contrast to certificates of deposit (CDs), money market accounts are relatively flexible with some scope for spending and transferring funds.
These are yours for signing on the dotted line at the bank of your choice. But before you uncap that pen, let’s explore when particularly is an appropriate time to open a money market account -- following a brief exploration of what you’ll be getting into. If you need a refresher on what a money market account is, read more here.
When should I open a money market account?
Everyone’s financial situation and means are different, so it’s hard to make concrete rules for when you should open a money market account.
We can stick to a few broad principles, though.
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Since money market accounts tend to have minimum deposit requirements -- typically in the low-to-mid thousands of dollars, although this can vary -- you’ll need at least a small pile of cash to open one. At the end of the day, it’s a facility meant for discretionary funds.
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You’ll also need to more or less maintain that pile of cash as time goes on, since many banks impose minimum ongoing balance requirements. These can come in lieu of, or be additional to, the minimum opening deposit.
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You should also have enough money in checking and other bank accounts to function comfortably. As we’ve written, checking accounts are facilities for frequent spending -- basically, they should work as your main spending account; under-funding this could cause serious problems.
CDs, on the other end of the spectrum, are vehicles 100% designed for store-and-wait savings. Even a small premature withdrawal will generate penalties that have the potential to wipe out future gains.
All of these accounts should stay sufficiently funded. If you’ll be under-funding any by opening a money market account (or cracking into one, in the case of CDs or brokerage accounts), it’s probably best to hold off until your financial situation improves.