Pros And Cons Of Money Market Accounts | Bankrate (2024)

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Key takeaways

  • Advantages of money market accounts often include high yields, liquidity and federal insurance for your funds. They may come with the ability to pay bills, write checks and make debit card purchases.
  • Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
  • A money market account that earns a high yield and provides easy access to your cash can be a good place to set aside money for an emergency fund or your next big planned expense.

As you consider deposit options for your funds, money market accounts (MMAs) will likely come up in your search. Think of a money market account as a parking spot for cash that you could need at a moment’s notice, but with a few guardrails to prevent you from accessing that money for easy spending.

Just as you compare the pros and cons of any place where you’ll put your money, it’s important to understand the benefits and drawbacks of money market accounts. (And to clarify, we’re talking about money market accounts, not money market funds.)

Money market account features

Money market accounts are somewhere between a checking and savings account, providing annual percentage yields (APYs) on par with savings accounts with the flexibility of a checking account. As such, they may have:

  • Check-writing and debit/ATM card access
  • Monthly fees and minimum deposit requirements
  • Online bill pay
  • Transaction limits

That last bullet is especially important. A bank’s transaction limit will tell you how many times per month you can withdraw money out of the account before incurring a fee. And if you surpass the transaction limit too often, some banks may even convert your MMA into a checking account or close your account altogether.

Advantages of money market accounts

Perks of money market accounts often include competitive annual percentage yields (APYs) and easy access to your cash, and your funds are protected when the account is with a federally-insured bank or credit union.

MMAs earn interest

When you make a deposit in a money market account, it does more than just sit there. It grows. The average money market account rate is currently 0.48 percent, according to Bankrate data. Make sure to shop around, though. The best money market rates are significantly higher than the average, with many over 4 percent and up to 5.25 percent.

You have easy access to cash

You don’t have to jump through hoops to withdraw the money from a money market account when you need it. You don’t have to completely redo your banking portfolio, either. Instead, you can link your checking account at your existing financial institution to a money market account at a new bank for online transfers.

Additionally, many money market accounts come with debit cards for ATM access and check-writing privileges. There is typically a limit of six withdrawals per statement period, though.

Money is protected by federal insurance

At federally insured institutions, you don’t have to worry about the safety of the funds in a money market account. Provided the bank or credit union has insurance from the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA), respectively, up to $250,000 is protected even if the institution fails and shuts its doors.

Disadvantages of money market accounts

Better rates may be available elsewhere

While the best money market accounts offer some decent earning potential, it’s important to note that you might be able to find higher interest rates with other savings products that come with additional restrictions.

For example, you often won’t earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer. Keep the possible trade-off of a lower yield in mind when you’re thinking about opening an account.

Minimum balance requirements may stand in the way

Most money market accounts have fairly low minimum balance requirements – as little as $0, in some cases. However, capitalizing on the interest rate that initially grabbed your attention might only be possible with a significant deposit. Some banks and credit unions have a $100,000 minimum in order to score their best rates.

Banks may charge monthly fees

While CDs don’t charge monthly service fees, money market accounts sometimes do charge them. It pays to research monthly service fees when you’re shopping for a money market account. Some will waive the fee if you maintain a set minimum balance or set up a direct deposit into the account. Finding a money market account that charges no monthly fees — or makes them easy to avoid — helps ensure such fees won’t eat away at your balance every month.

Is a money market account worth it?

The safety, liquidity and yield of money market accounts makes them great candidates for a few key pieces of your personal finance portfolio.

  • Your emergency fund: The importance of having money set away for those unplanned, unwanted expenses — a medical emergency, a major car repair or a job loss, for example — cannot be overstated. A money market account makes those funds easily accessible if you need them while keeping them separate from your checking account and the temptation to dip into them.
  • Your next big expense: Whether you’re saving for a wedding or a vacation, a money market account gives you a good place to park those funds. Plus, you can take advantage of the interest rate to help give your savings a bump and get you closer to the finish line a bit faster.
  • Your tax payments: For independent contractors and freelance workers, setting money aside for taxes can be tricky. A money market account can help you make sure you’re saving the appropriate amount of money and send quarterly tax estimates.

While online high-yield savings accounts and CDs are also options for storing money away for different goals, a money market account might be a better option when more frequent access to that money is desired. If you’re saving for a particular goal, such as buying a car, a money market account will allow you to write a check from the account when it comes time to use those funds.

Money market accounts vs. other savings products

It can pay to compare money market accounts to other savings products to determine which is best for your needs. Points to compare include the APYs and any fees, as well as any restrictions that come with each account.

Savings accounts

Money markets commonly reward larger balance tiers with higher APYs, which can make them attractive to big savers. If you’re not looking to store a large balance in the account, you may find a savings account to be a better option.

Unlike some money markets, savings accounts generally don’t provide the ability to pay bills, write checks and make debit card purchases. Those who aren’t looking for such capabilities may prefer a standard savings account instead.

Money market funds

While money market accounts and money market funds may be similar in name, they are completely different products.

Money market funds are relatively safe. However, they do not have insurance, so they’re not worry-free. Money market funds are better suited for your brokerage account, giving you the ability to hop on investment opportunities at a moment’s notice. They can be easily mixed up with money market accounts, which serves as a valuable lesson: Always do thoughtful research any time you’re thinking about depositing, investing or spending your hard-earned money.

— Greg McBride, CFA, is Bankrate’s chief financial analyst. As a personal finance expert, he is regularly quoted in the media for his in-depth commentary and practical advice to consumers. Bankrate’s Marcos Cabello, René Bennett and Karen Bennett contributed to updates of this story.

Pros And Cons Of Money Market Accounts | Bankrate (2024)

FAQs

Pros And Cons Of Money Market Accounts | Bankrate? ›

They may come with the ability to pay bills, write checks and make debit card purchases. Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.

What are the advantages and disadvantages of a money market account? ›

Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.

What is a con to a money market account? ›

Cons
  1. Some institutions require high minimum balances to open an account or avoid fees.
  2. Rates are lower compared with some high-yield savings accounts.
  3. Access to money with checks and debit cards could encourage impulse spending, which might make it harder to save.
Jan 31, 2024

Are money market accounts worth it? ›

Because you earn higher interest rates than with a traditional savings account, a money market account can be a great choice to set aside some emergency cash or start building your savings. And unlike a traditional savings account, you have more options for withdrawing your money when you want it.

What are the disadvantages of money marketing? ›

A disadvantage is the opposite of an advantage, a lucky or favorable circ*mstance. At the root of both words is the Old French avant, "at the front."

How much will $10,000 make in a money market account? ›

Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs). CDs are offered by financial institutions for set periods of time.

How safe are money market accounts right now? ›

Are money market accounts safe? Yes, money market accounts are safe. The FDIC insured these products for up to $250,000 per depositor, per account ownership category. At credit unions, money market accounts receive the same level of protection from the NCUA.

Can I lose money in a money market account? ›

You cannot lose the balance of a money market account, although penalty fees may be charged for not meeting balance and withdrawal requirements. A money market fund is a type of investment account that invests in funds that may gain and lose value, meaning you could lose part of your initial investment.

What are the problems with money market accounts? ›

Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.

Can money be taken out of a money market account? ›

Federal regulations that govern savings account withdrawals don't apply to ATMs. So you can make unlimited ATM withdrawals from your money market account without penalty. Many banks also let you to write a limited number of checks from your money market account.

What are 2 disadvantages of a money market account? ›

Key takeaways
  • Advantages of money market accounts often include high yields, liquidity and federal insurance for your funds. ...
  • Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
Mar 26, 2024

Do rich people use money market accounts? ›

Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.

Do you pay taxes on money market accounts? ›

Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.

Who typically uses a money market account? ›

For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.

What is the best money market account right now? ›

Best Money Market Account Rates
  • Northern Bank Direct – 4.95% APY.
  • All America Bank – 4.90% APY.
  • Redneck Bank – 4.90% APY.
  • First Foundation Bank – 4.90% APY.
  • Sallie Mae Bank – 4.65% APY.
  • Prime Alliance Bank – 4.50% APY.
  • Presidential Bank – 4.37% APY.
  • EverBank – 4.30% APY.

Are money market accounts FDIC insured? ›

A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners.

Which is better a savings account or a money market account? ›

Many savings accounts have no or low minimum balances and low or no fees. Many money market accounts have much higher minimum balance requirements and monthly fees. This makes them more popular with people who have larger balances and who want the flexibility to make large purchases.

What is the advantage of investing in a money market account? ›

Money market funds invest in highly liquid securities like cash, cash equivalents, and high-rated debt-based securities. Because they only invest in highly rated securities, money market funds offer a high degree of safety. Money market funds also offer investors higher yields than traditional savings accounts.

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