The Pros And Cons Of Money Market Accounts (2024)

Whether you have savings or you’re just starting the savings journey, the biggest question may be where to keep your money. A money market account is one alternative you might consider in place of a traditional savings account or high-yield savings account.

Money market accounts aren’t all identical, but typically, they combine features of savings accounts and checking accounts in one convenient place. While there are some advantages to keeping savings or money you don’t necessarily need right away in one of these accounts, there are some potential drawbacks to consider.

A money market account, often called an MMA, is a flexible interest-bearing account offered by traditional banks, online banks and credit unions. Many money market accounts let you write checks, and some also come with a debit or ATM card you can use to make purchases and withdrawals. Other features of money market accounts may include:

• Minimum deposit requirements
• Monthly maintenance fees
• Excessive withdrawal fees
• Variable APYs
• Tiered interest rates

Benefits of a Money Market Account

Money market accounts can offer some of the same advantages as savings accounts, checking accounts or even certificates of deposit. The main benefits of a money market account include:

• Flexibility. Depositing funds to a money market account or transferring money between linked accounts can be convenient if you have multiple accounts at the same bank. Having a linked debit or ATM card and being able to write checks also can make things like paying bills, funding large expenses or covering an emergency easier and less stressful. Money market accounts also can be used to fund multiple savings goals for the short and long term.
• Competitive rates. Compared to other types of deposit accounts, money market accounts can offer competitive rates. The better your APY, the more opportunity your money has to grow over time. If earning the best rate possible on savings while keeping your money liquid is a priority, a money market account could be a good fit for your needs.
• Safety. Money market accounts can offer safety and security if funds are held at an FDIC-insured bank or credit union. These accounts are a low-risk way to hold funds that you don’t need to spend or use right away. Note, however, that a money market account and a money market fund aren’t the same thing. Money market funds are a type of mutual fund that invests in short-term debt securities and is an investment vehicle, not a savings account.
• Access. Having your money available when you need it is important. A money market account allows access to your money at any time, unlike a certificate of deposit, which requires you to keep your money in the account for a set time period. If you need to dip into savings for any reason, you can do so via electronic transfer, check or ATM withdrawal depending on which options are offered by your bank.

These benefits can give money market accounts some definite advantages over savings accounts or CDs. And being able to earn interest while still having the option to write checks can make them more appealing than many standard checking accounts.

Drawbacks of Money Market Accounts

Any time you’re considering opening a new type of bank account, it’s important to consider any potential downsides. Money market accounts can sometimes fall short of savers’ expectations when it comes to the following:

• Minimum balance requirements. Every bank has different rules for the minimum amount needed to open a money market savings account. While some banks may set the threshold as low as $1, others may expect you to bring $5,000 or even $10,000 to the table to open your account. If you’re just getting started with saving money, your options for opening a money market account may be limited if you can’t meet the bank’s minimum deposit requirement.
• Interest rates. While some money market deposit accounts can offer great rates for savers, others may offer a rate that’s similar to the APY you could earn with a standard savings account. Or, to qualify for a higher rate, you may have to first reach a certain minimum balance, such as $5,000 or $10,000, in your account. Either scenario could make a money market account less attractive if getting the best rate possible on savings is what’s most important to you.
• Fees. With any bank account, it’s always good to be aware of the fees the bank may charge. For money market accounts, banks can charge monthly maintenance fees simply for having the account. While it may be possible to waive the fee by meeting daily balance or direct deposit requirements, not every bank offers a work-around for avoiding the fee. The higher the fee, the more it can eat away at the interest your savings earns each month.
• Withdrawal restrictions. Money market accounts share another similarity with savings accounts when it comes to withdrawal guidelines. These accounts in the past have been subject to federal Regulation D limits, which capped convenient withdrawals at six per month. While these limits were suspended indefinitely in response to the coronavirus pandemic, individual banks can still impose their own limits on withdrawals from money market accounts. Additionally, they can charge a fee for excess withdrawals over those limits.

How heavily the cons weigh in your decision-making depends on which bank’s money market account you’re considering. For example, some banks may offer better rates, fewer fees and lower minimum balance requirements than others. That’s why it’s so important to choose the account that’s most appropriate for your needs and to compare money market accounts from different banks before opening one.

What Are Money Market Accounts Good For?

Money market accounts can be used to save money for short-term or long-term needs. For example, you might consider opening a money market account if you:

• Need a convenient and secure place to keep your emergency fund
• Want to earn an APY comparable to CDs without tying up your money for months
• Need to set up sinking funds for recurring expenses that aren’t part of your regular budget
• Want to set aside money to pay for a new-to-you car in cash
• Are interested in saving money toward a down payment on a home

These are all good reasons to consider a money market account in place of a CD or savings account. Remember, savings accounts typically don’t come with checks or a debit card. And CDs require you to keep your money parked for a set period of time. Otherwise, withdrawing money from a CD early could trigger a penalty.

Is a Money Market Account Worth it?

Money market accounts offer a way to separate your savings from your checking account while still maintaining convenient access. Keep in mind that many banks still charge fees on money market accounts if you go over six monthly withdrawals, so they might not be worth it if you expect to exceed this limit.

Whether an MMA is worth it for you depends largely on your goals, but this type of savings vehicle offers many advantages over other kinds of interest-bearing accounts.

“A money market account can be a worthwhile financial tool depending on your financial goals and circ*mstances. MMAs often offer higher interest rates compared to regular savings accounts, [which] can be advantageous if you’re looking to earn more on your savings while still transacting a moderate amount from the account,” says Christopher Naghibi, executive vice president and COO of First Foundation Bank. “MMAs typically offer better liquidity than CDs, allowing you to withdraw funds without penalty. This can be beneficial if you need occasional access to your money or need to have some transactions in to and out of your account.”

Money Market vs. Savings Account

Money market and savings accounts have many things in common, but they differ in accessibility. While money market accounts often come with check-writing capabilities and debit or ATM cards, it’s rare to find these features with savings accounts. You can deposit cash into savings accounts at any time, but you generally need to transfer money to another account to spend it.

In terms of which account promises better rates, MMAs often come out slightly on top. But both money market accounts and high-yield savings accounts can offer high rates that generally beat those of traditional savings accounts and checking accounts. MMAs and savings accounts also provide FDIC or NCUA insurance and may restrict monthly transactions.

To decide whether to open a money market or savings account, don’t just compare APYs and interest rates, although this is a good start. Compare the following as well:

• Minimum deposit and minimum balance requirements
• Monthly fees and other fees
• Cash accessibility features

Money Market Account vs. CDs

CD accounts have a few characteristics that set them apart from money market accounts—namely, the fact they’re time-bound. When you open a CD, you commit to leaving your deposit alone until the account reaches maturity—you’ll generally pay fees if you remove funds early. Money market accounts don’t lock your money, but they usually don’t promise rates as high as CDs.

As a rule, you will likely find that the best CD rates are better than money market rates for many terms. In exchange for restricted cash access, banks are often willing to pay the best APYs on CDs. CDs also earn fixed interest, while MMAs earn variable rates that can change at any time.

Money Market vs. Checking Account

Checking accounts are designed for everyday spending and often don’t earn much or any interest. While interest checking accounts are becoming more commonplace, they typically pay rates well below what you could earn with a money market account.

To choose between a money market and a checking account, consider how often you’re going to use the money. If you’ll need to access or spend funds several times a month, choose a checking account so you don’t have to worry about transaction limits. If you only need to dip into the account a few times a month or less, consider a money market account with a debit card.

Between money market accounts and checking accounts, MMAs are much better for maximizing your interest, but they shouldn’t replace your checking account for regular use.

Bottom Line

A money market account is great for storing money for emergencies and other savings goals. If you want to start saving and earning interest on your money while retaining access to your funds, a money market account fits the bill. When comparing money market accounts, always look at the interest rate, minimum balance requirements and monthly fees.

Frequently Asked Questions (FAQs)