A money market account is a good savings option if you want to start building an emergency cash fund. These accounts are also easily accessible for young adults since most banks and credit unions offer them. They operate similarly to a standard checking or savings account, but they often earn money at a higher interest rate. While money market accounts might be a good way to save emergency cash, it is important to pay attention to withdrawal restrictions and penalties.
Minimum Balance Requirements
Before opening a money market account, check the bank's minimum opening deposit requirements. You should also be familiar with any minimum average daily balance requirements. Some banks will charge a monthly maintenance fee if your money market account balance falls below the minimum balance requirement. To avoid maintenance fees, don't make too many withdrawals that might drop your account balance below the minimum.
Federal Withdrawal Limits
The federal government restricts the amount of monthly withdrawals to six per money market account. This withdrawal limit is per statement cycle or calendar month, depending upon the bank or credit union. The federal restriction means that you are allowed only six withdrawal transactions, which could include pre-authorized transfers, ATM withdrawals, written checks, or withdrawals initiated through a bank teller. This is different from most checking or savings accounts, which let you make unlimited withdrawals penalty-free. For this reason, consumers often choose money market accounts for savings while holding a standard checking account for daily transactions.
Excess Activity Fees
Banks might charge you an "excess activity fee" for any monthly withdrawals that go over the federal limit. Check with your bank to go over its money market account rules and customer agreements. The bank's account agreement should state the fee amount that you will be charged per transaction. These fees are similar to checking account overdraft fees, which are charged per item rather than as a flat one-time fee.
Quite a few money market accounts offer separate interest tiers that are dependent on the average daily balance. For example, a money market account with a balance between $1,000 and $10,000 might earn an annual interest rate of 0.20 percent. The same account that maintains a balance between $10,001 and $50,000 might qualify for an annual interest rate of 0.50 percent. When you consistently withdraw enough from your account to drop its balance down to the next tier, you risk losing higher interest rates.
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