If you’re tired of earning next to nothing with your cash parked in a bank savings account, you should consider a money market account instead. Money market accounts almost always yield more than a savings account for several reasons, and are considered to be just as safe.

Safety

Money market accounts are insured by the FDIC. This is an agency within the federal government that operates completely independently, and reimburses you if the bank you have funds deposited in should fail. The FDIC came into existence during the Great Depression to restore public confidence in banks. Ever since its creation, not a single depositor has lost a single penny from a bank failure. The FDIC has always made good on its insurance promise. The FDIC pays depositors out of a special insurance fund, that is contributed to by the banks it insures, and from interest on its own portfolio of US Treasury securities.

Yield Correlates to Safety

The safer an investment is, the lower a yield it will offer. The way risk-reward is naturally structured is that in order to convince an investor to place his or her funds in a very risky investment, he will require a higher yield to be enticed to take on that risk. If the risk is very low, then the investor will not require a lot of convincing to invest in the proposition. However, just because an investment carries no risk at all, like money market accounts, that doesn’t mean the yield will be zero. The investor has to be offered something to place his or her funds in the deal.

Yield Correlates to Interest Rates

The biggest driver of money market yields, however, is interest rates. As interest rates rise, the yields on money market investments also rise. It has become costlier for the government to borrow money, which drives up Treasury yields. Corporations must raise the yields they pay on commercial paper to compete with other investments — such as bank savings accounts. The more interest a corporation must pay on a debt, the higher the risk that they may not be able to pay. That risk, again, is minimal. Nevertheless, it is a risk, so that boosts the yield.

Account Restrictions

There is a trade-off for enjoying the higher yields that money market accounts offer, but they are not at all significant. Many have a minimum balance requirement, which could be anywhere from $1,000 to $2,500. This contrasts with a regular bank passbook savings account, which can often be opened with just a few dollars. It’s important to note that this is an ongoing minimum balance requirement, not a minimum deposit requirement. A bank will often assess a fee if you fall below that minimum, so always be certain to check your balance before making a withdrawal.

Speaking of withdrawals, there are also restrictions placed on the number of withdrawals within any given statement cycle, usually around six. Generally speaking, these withdrawals can be automated or done via the telephone, and sometimes with a check.

Putting It All Together

There’s no better place to hunt down the highest money market rates than the internet. You can compare rates side by side in many cases. Bankrate.com lists average money market account rates, based on the amount you invest in the account. With the averages known, you’ll be able to find out if your bank is beating that average.

However, be careful. Don’t just go with the highest interest rate you find. Be sure the fund you choose has a long history. Make sure the bank offers the ability to write checks on the account. Having the equivalent of a cash account without the ability to draw from it easily will cause more problems than it’s worth.