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A money market account is a versatile tool that can tackle multiple financial needs. But that doesn’t necessarily mean you should dump all of your available cash into one of these accounts and call it a day.
Depending on your financial goals, one or more money market alternatives might be a better fit for you.
Money market accounts keep your cash liquid while earning more than your basic savings account. However, quite a few cash alternatives can earn you even more—in some cases, by a significant stretch.
Let me walk you through a number of money market alternatives. As you’re looking through these, you’ll want to consider a few things—how liquid the accounts are, how risky they are, and how diversified you want to be with your investments and cash holdings.
Don’t worry; we have all of that information, and more, explained for the money market account alternatives below. You worked hard for your money, so you should make sure to store it somewhere advantageous.
What Is a Money Market Account?
Money market deposit accounts (better known to you and me as money market accounts) borrow features from both checking and savings accounts.
Like a checking account, users typically have check writing privileges, receive a debit card, or both. However, the number of monthly transactions is usually limited, with six per month being the most common.
However, like a savings account, these interests typically generate interest—and in fact, they usually produce a better yield than traditional savings accounts. Like savings accounts, however, the interest rates are variable, so a high rate now might not be a high rate forever. (Conversely, a low rate now might rise in the future.)
A money market deposit account is a popular place to store an emergency fund because the account will earn interest while still providing relatively easy (albeit limited) access to your money. Funds in these accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for banks, or the National Credit Union Administration (NCUA) for credit unions, up to $250,000.
Note that, despite a similar name, a money market account is different from a money market mutual fund. (But don’t worry: I’ll explain what a money market mutual fund is in a minute.)
Why Consider Money Market Account Alternatives?
While there are several advantages to money market deposit accounts—such as higher interest rates than traditional bank savings accounts, and relatively high liquidity—these accounts have their disadvantages, too.
Many (though not all) money market accounts have high minimum balance requirements and might also charge monthly fees. Additionally, since the interest rates are variable, it can be challenging to predict exactly how much you will earn. Also, some money market alternatives can earn you more money.
Best Money Market Account Alternatives
1. High-Yield Savings Accounts
High-yield savings accounts (HYSAs) are an excellent short-term investment. These accounts offer much higher rates than traditional savings accounts but usually have similarly high liquidity as cash deposits.
One downside of an HYSA is that interest rates can change. Know that even if you get the best interest-rate deal possible initially, that rate might drop over time. For example, many different banks lowered their high-yield savings account interest rates numerous times throughout 2020. This happens because interest rates are tied to the Federal Reserve’s fed funds rate, which goes up and down over time depending on the Fed’s views of the economy. So it’s essential to keep an eye on a bank’s rates not only when you open the account, but over time as long as you have an account with the bank.
Also keep an eye on fees. Some banks will charge a monthly maintenance fee for high-yield savings accounts, or charge other fees for using certain bank account features. So understand all of the fees associated with your chosen account before signing up.
Ultimately, high-yield savings accounts are a great cash alternative that can earn you a higher rate of return than a traditional savings account without sacrificing liquidity. They’re also extremely low-risk—the money in your account can’t decline in value, and each depositor is typically given up to $250,000 in Federal Deposit Insurance Corporation (FDIC) insurance or National Credit Union Administration (NCUA) insurance.
Save with Step Banking
Step, made popular by its unique “hybrid” Step Visa Card, has expanded its offerings to include a powerful high-yield savings tool.
Users earn 5% annually—compounded and paid monthly—on up to $250,000 saved in their Savings Goals, calculated using the average daily balance in your Savings Goals. Like with your average savings account, Step’s savings yield can change depending on movements in the Federal Funds Rate, but if that happens, Step will give you 30 days’ notice before it happens.
To qualify, the user must have a direct deposit of at least $500 per month, and the benefit extends for as long as the direct deposits continue. (Other perks of making qualifying direct deposits? Bonus points on dining, food delivery, charitable donations, specific merchants—and you can get paid up to two days early.)
And remember: When you sign up with Step, you also get their Step Visa Card—a spending card that functions like a debit card, but also boasts some of the features of a Visa credit card—including the ability to build your (or your child’s) credit history. You can’t spend money you don’t have, eliminating the fear of over-drafting. The card can be used to withdraw money fee-free at more than 30,000 ATMs, and it’s protected by Visa’s Fraud Protection and Zero Liability guarantee. Sign up for high-yield savings with Step today.