An In-Depth Look at Money Market Accounts

What Exactly Is a Money Market Account?

Similar to a traditional savings account, a money market account allows you to save money while earning interest on your balance, and is a great step toward achieving your financial goals, whether those goals include buying your first home or thinking ahead to college tuition for the kids.

The amount of interest you earn in a money market account depends on the current interest rates in the money markets, though they generally have a higher interest rate than many other forms of financial savings plans, like certificates of deposit (CDs). Because these accounts are primarily based on short-term transactions, you get the benefit of accruing more interest, faster, than with a traditional savings account.

What Are the Advantages?

  • They earn relatively large amounts of interest for higher balances.
  • No monthly fees.
  • Money market accounts provide steady growth and are FDIC-insured up to $250,000.
  • Flexibility. Funds remain accessible throughout the duration of savings — up to six withdrawals are allowed each monthly statement cycle (not locked away for a set period of time as with a CD).
  • You don’t need to have Dime Community Bank savings or any other account to get started. In fact, you can open a DimeDirect Money Market today.
  • Low minimum starting balance of $1,000 means you can sign up sooner, and start saving.

How They Differ from Other Savings Accounts? 

Because interest rates on money market accounts are based on the money markets and not a set interest rate determined by the lending institution, as is the case with most traditional savings accounts, money market accounts can earn much more interest, especially for long-term savers.

Are Money Market Accounts Related to the Stock Market?

Loosely.

The money market operates in tandem with the stock market. As their name suggests, money market accounts are based on the rates involved in the short-term borrowing that occurs among the financial institutions that deal in “paper” money, like cash, credit and debit transactions.

Borrowing and lending in the money market takes place over relatively short periods of time — up to and generally no more than 13 months. Most of the activity in the money markets comprises inter-bank lending, the process by which banks and other financial institutions, like credit unions, borrow and lend assets among themselves.

Is a Money Market Fund the Same Thing as a Money Market Account?

No, although the two bear some similarities:

  • A money market account is FDIC-insured while a a money market fund is tied to the market, based on short term risk—your principal is not insured.

The difference is that a money market fund is firstly a mutual fund that invests your savings in different short-term debt assets than a money market account would. Money market funds place your savings in assets like treasury bills and commercial paper rather than the money market itself.

What Is a Good Interest Rate for a Money Market Account?

Money market interest rates are based on both the amount of the initial deposit and the duration of the deposit term. As a result, what qualifies as a good interest rate will vary based on these two factors. All else being equal, the national average sits at about .11%, while with Dime Community Bank, the average rate is well above that at 1.10%.

If you’re ready to start saving with a money market account, get started today by opening an account online, or give us call at 800-321-DIME to learn more about the options and advantages of our savings accounts.