Are Money Market Accounts Worth It?

Money market accounts are hybrid financial products that offer some of the advantages of a checking and a savings account. Specifically, money market accounts pay you an interest rate based on the money you hold on deposit, like a savings account. But they also allow you to write checks and withdraw money from ATMs like a checking account. While not without their drawbacks, money market accounts can be a good option for consumers who want to hold large amounts of cash on deposit. Here’s what you need to know.

For more help with savings, consider working with a financial advisor.

What Is a Money Market Account?

A money market account is a specialized savings account. Despite sharing a similar name with investment products, it has nothing to do with investment or financial markets beyond the standard consumer-lender relationship of depository institutions. These are accounts held on deposit with your bank or credit union and insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).

Money market accounts typically pay a higher interest rate than comparable savings accounts. At the same time, they also offer certain liquidity options that most savings accounts do not. Specifically, a money market account will usually come with a checkbook and debit card in the same way as a checking account.

Keep in mind that a money market has specific withdrawal limits that a checking account does not. A standard money market account restricts you to six check or debit card transactions per month. However, they do allow you to access cash at will, meaning that they do not restrict your ATM withdrawals.

In practice, this generally limits your large transactions each month while allowing you unlimited small, cash-based payments.

Money Market Accounts vs. Checking and Savings Accounts

As hybrid products, money market accounts offer elements of a savings and a checking account. Here’s how they compare.

Money Market vs. Savings Accounts

Money market accounts tend to offer higher interest rates than savings accounts, making them attractive to long-term savers. For example, at time of writing, the average savings account paid approximately 0.41% in interest. At the same time, money market accounts averaged around 0.62% interest.

That said, it is important to understand that these are only averages. Some money market accounts offer much higher interest rates than a standard savings account, with rates around 3.90% or even 4.01%. Even with a lower rate you are still earning interest comparable to many checking accounts, just with liquidity restrictions.

For higher interest money market accounts, the tradeoff is generally account minimums. Money market accounts require significantly higher account minimums than savings accounts, with some requiring you to keep at least $25,000 to $50,000 on deposit before you can access competitive interest rates. Many will also charge you monthly fees of around $5 to $20, depending on their account minimums and interest rates.While the details vary, money market accounts require much higher minimum balances than savings accounts. This is how they can offer those higher interest rates.

Money Market vs. Checking Accounts

When comparing money market accounts vs. checking accounts, it is important to consider liquidity. Here, they are similar as money market accounts offer some of the liquidity and spending options of a checking account.

With most banks, you cannot easily access the money in your savings account. You must transfer money from savings to checking, losing the advantage of interest, before you can spend your money. To restrict savings account liquidity, banks generally limit the number of times you can transfer money out of a savings account.

With a money market account, you gain some of that access. You can spend this money by writing checks or with a debit card, and you can withdraw your money in cash through ATMs. You can do all of this while earning interest on those funds.

The catch is that you can only access this money on a limited basis. As noted above, money market accounts restrict the number of transactions you can conduct each money. With a standard account, you cannot conduct more than six check or debit card transactions each month combined. Most accounts do, however, allow unlimited cash withdrawals at ATMs.

These restrictions also come with account minimums and maintenance fees, both of which are rarely features of a checking account.

When to Use a Money Market Account: Common Examples

A money market account is a good place for holding an emergency fund. These accounts pay interest and allow limited access through checks or a debit card. That makes it easier to access your money quickly during an emergency, like a car repair or unexpected medical bill, without having to transfer funds from another account.

They also work well when saving for a short-term goal, such as a home down payment, vacation, or new car. Since money market accounts typically earn more interest than regular savings accounts, your money can grow faster with extra protection and easier access when it is time to spend.

If you want to keep a large amount of money out of the stock market, a money market account can help. It gives you a way to earn interest while avoiding the risk of market losses. This is helpful if you are between investments or saving for a large purchase and do not want your balance to fluctuate.

Money market accounts are less useful for frequent spending. If you need to make many payments or withdrawals, a checking account might be a better fit. But for saving money you want to access occasionally and grow steadily, a money market account can be a strong option.

Are Money Market Accounts Worth It?

As with all financial products, it depends. Money market accounts are for savers comfortable with keeping large amounts of money on deposit. If you do not have the assets to keep a comfortable five-figure sum in the bank, you generally cannot access a money market account due to the high minimum balance requirements. If you do have that kind of money but would rather invest it, again the minimum balance requirement will make this an impractical choice.

However, if you do want to keep a relatively large amount of money in cash at any given time, a money market account might be a very good product. It will allow you to build your savings without having to expose your money to the stock or investments market.

As a result, money market accounts can be particularly useful when you have specific financial goals. For example, money market accounts can often be a good place to keep your emergency fund or savings for a large purchase. In this case, you can set aside money that is not exposed to the risk of an investment while still generating a higher yield than savings would offer.

Although not generally a good substitute for a checking account, a money market account can be a good substitute for a targeted savings account.

Bottom Line

A couple discussing their money market account with a financial advisor.

Money market accounts are a hybrid product, offering some of the advantages of a savings and a checking account at the same time. This makes them particularly useful for consumers who want to keep a large amount of cash on hand.

Savings Tips

A financial advisor can help you use money market accounts. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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