Thinking of getting a money market account? Consider these pros and cons (2024)

You’ve started to save money and are building up cash reserves. The next step: deciding where and what kind of account you should keep savings in.

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. To figure out if these accounts are right for you, it’s important to understand both the pros and cons and how they fit into your financial goals.

Pros of money market accounts

Money market accounts are interest-accumulating accounts you can open at a bank or a credit union. What differentiates these accounts from other savings accounts is they generally pay higher interest rates, which can benefit those with short-term savings goals.

Pros

  • Attractive APYs
  • Easy access to your funds
  • FDIC- and NCUA-insured depending on where you bank

Cons

  • There might be withdrawal limits
  • Monthly fees are common
  • Minimum balance may be required

1. Money market accounts offer competitive APYs

The most significant benefit of money market accounts is that they offer high annual percentage yields (APY). While the exact amount of interest you earn will depend on a few factors—such as how much money you have in the account and which bank you open your account with—they generally pay higher interest rates than traditional savings accounts.

This is an attractive option because we are currently at a unique point in the economy where savings account yields have been higher than they’ve been in years due to rising interest rates.

“At a high level, money market funds are generally a better option than just sitting in a checking or a savings account because they actually yield higher,” explains Matt Kocanda, certified financial planner at CI BDF Private Wealth, a private wealth-management firm in Itasca, Ill.

While money market accounts are great for saving and managing your money, it’s important to remember that a money market account is not considered an investment tool, and to build a long-term investment portfolio, consider opening a retirement account such as a 401(k) or Roth IRA.

2. Easy access to your money

What makes money market accounts different from high-yield savings accounts is that the accounts offer features of both savings accounts and checking accounts. Like checking accounts, they often come with debit cards and check-writing abilities.

Many banks offer debit cards to money market account holders, enabling users to make withdrawals and transfers from ATMs and pay for goods with their debit card. Users can often also write checks against their account balances.

Because these accounts offer high interest rates with easy access, they are best suited for people who are saving money for the short term.

“These accounts are really good for cash needs that you’re going to have in the next couple of months. For example, tax bills are coming up and these are great places to just hold your tax funds,” Kocanda says.

3. Your money is protected

Another quality that makes money market accounts attractive is that they are insured. The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insure up to $250,000 in a money market account, so you can be confident you won’t lose your money if the bank you’re using fails.

“I’ve even seen people open multiple money market accounts so that they continue to get the higher interest rate, but also maintain the FDIC insurance that would come with the equivalent of staying just in a checking or savings account,” explains Chloe Wohlforth, certified financial planner at Angeles Wealth Management, a multi-asset investment firm.

However, money market mutual funds, which stock brokers offer, are not federally insured. And not all banks are FDIC-insured, so make sure to confirm this before signing up for an account.

Cons of money market accounts

While money market accounts are a great option for short-term savings, they have limitations that potential users should consider.

1. Depending on your bank, there could be withdrawal limits

Many banks have withdrawal limits on how much you can withdraw from your money market account and how often.

“Many of the withdrawal limitations [limit you to withdrawing] more than six times a month, so it’s a different situation than someone that would be relying on using their debit card often for a regular checking account,” says Kocanda.

The Federal Reserve previously required banks and credit unions to limit withdrawals to six per month; however, it reversed that policy in April 2020. It’s important to check with your bank or credit union to see if the policy is still in place.

2. Many accounts have monthly fees

Another drawback to remember is that while they have high yields, money market accounts can also come with cumbersome fees. Many banks and credit unions will impose monthly fees just for the upkeep of your account. Other banks could charge fees for not maintaining a high enough balance or surpassing the withdrawal limit. Excessive transactions and overdraft fees range from $10 to $25.

3. Your account might have a minimum balance requirement

To open a money market account, you’ll usually need to meet a minimum balance, depending on your bank or credit union. So, if you are saving slowly and starting from a low balance, an alternative savings account might be a better option until you can meet the minimum balance requirement. Minimum balance requirements can range from $100 to $2,000, but there are money market accounts available that don’t have minimum balance requirements.

Also, while these accounts don’t have maximum balance limits, it’s important to remember that insurance only covers $250,000, so any more than that in the account is not fully insured. Nothing prevents you from having different accounts at different banks, since both the FDIC and NCUA cover up to $250,000 for each depositor, per insured bank, for each account ownership category.

The takeaway

Money market accounts are a great option if you’re looking to maximize the amount of interest you can earn in a low-risk setting. You’ll have easy access to your money, your account is insured up to $250,000, and it’s a great financial tool to help you reach your short-term savings goals.

However, if you’re starting out with a relatively small amount and are worried about the cost of fees potentially eating away at your earned interest, you may want to consider money market account alternatives.

Frequently asked questions

Are money market accounts worth it?

If you want to put your money in a high-yield account for a short-term savings goal, money market accounts have many benefits. If you want to withdraw money frequently or save for long-term goals like retirement, a checking account and investment account or high-yield savings account would be better options.

Can a money market account lose money?

A money market account is a savings account, so you will not lose money based on fluctuations in the stock market. However, some money market accounts have monthly fees to watch out for.

Which is better: money markets or savings accounts?

Depending on your financial goals, both can be great options. The benefit of a money market account is that it incorporates features of a checking account, like easy access to your money, and has high yields. Yet a high-yield savings account can also be a great way to store your money, and you can avoid the minimum balance requirements and monthly fees of some money market accounts.

Thinking of getting a money market account? Consider these pros and cons (2024)

FAQs

What are the pros and cons of money market accounts? ›

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

What are the pros and cons of money market instruments? ›

A money market fund generates income (taxable or tax-free, depending on its portfolio), but little capital appreciation. Money market funds should be used as a place to park money temporarily before investing elsewhere or making an anticipated cash outlay; they are not suitable as long-term investments.

What is should you consider when choosing a money market account? ›

How to choose a money market account. Look for a money market account with a high interest rate and no monthly fee. The account should also have a low minimum balance — less than $1,000 is often attainable. Some institutions require $10,000 or more to earn the best rates or avoid a fee, while others have no minimum.

What are the pros and cons of saving money? ›

Savings account benefits include safety for your savings, interest earnings and easy access to your money. However, savings accounts may have drawbacks, such as variable interest rates, minimum balance requirements and fees.

What are the cons of having a money market account? ›

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

What are three cons of a money market account? ›

Disadvantages of money market accounts
  • Limited transactions. Some accounts limit certain transfers and withdrawals (known as convenient transactions) to six per month, so this isn't the best account for regular banking. ...
  • Deposit and balance requirements. ...
  • Fees. ...
  • High interest rates. ...
  • Flexible access. ...
  • Federal insurance.
Mar 18, 2024

What are the pros money market? ›

May offer additional features such as online and mobile banking. MMAs typically have competitive interest rates compared to checking accounts and some savings accounts. They are protected by FDIC insurance.

What is a money market account good for? ›

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.

Is a money market account safe? ›

Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.

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.

Should I use a money market account as a savings account? ›

Money market accounts offer flexibility with check-writing and debit cards, savings accounts are more accessible and have lower fees, and CDs offer higher interest rates but with a commitment to keep your money locked away for a set period of time. To make the best choice, consider your financial goals and situation.

What are two pros and two cons of a savings account? ›

Savings Account: Pros & Cons
ProsCons
Federally insured banks and credit unions are insured up to $250,000 per depositor.Relatively low interest rates compared to other investment options.
High interest earnings will grow your money exponentially over time.Limited to certain types and amounts of withdrawals and transfers.
2 more rows

What are the 5 disadvantages of money? ›

The following are the various disadvantages of money:
  • Demonetization - ...
  • Exchange Rate Instability - ...
  • Monetary Mismanagement - ...
  • Excess Issuance - ...
  • Restricted Acceptability (Limited Acceptance) - ...
  • Inconvenience of Small Denominators - ...
  • Troubling Balance of Payments - ...
  • Short Life -

What are the pros and cons of a checking account? ›

The primary benefit of checking accounts is the ability to store money you intend on spending, either through debit card transactions, checks, or cash withdrawals. However, the downside is they typically don't pay interest.

What is the risk of losing money in a money market account? ›

The risks of money market accounts

MMAs are considered very low risk in general, especially if the depositor's total balance at the bank or credit union is below the applicable FDIC or NCUA limit. FDIC or NCUA standard insurance covers up to $250,000 per depositor per ownership category at each financial institution.

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.

Is the money market better than a savings account? ›

A money market account is also a deposit account that offers higher interest compared to a traditional savings account, but it also includes some capabilities more commonly found in traditional checking accounts, such as access to your funds via debit card or check.

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