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Money market accounts are interest accruing accounts at a bank or credit union that are government-insured.
The appeal of money market accounts is that they look like a high-yield savings account and act like a limited-benefit checking account.
Money market accounts have some check writing, transfer, and debit card privileges while offering interest rates more like savings accounts.
Are Money Market Accounts Safe?
In a nutshell: YES!
Money Market Accounts can be opened at both banks and credit unions and offer government-backed insurance by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Administration) up to $250,000 per account holder and $500,000 for joint accounts, so consumers can be assured that their money is safe even if their bank or credit union goes belly up.
Consumers who need more than $250,000 insurance per account holder can have more than one Money Market Account.
What are the Advantages of Money Market Accounts?
Money Market Accounts are more flexible than savings accounts because they do have some features of checking accounts.
Money Market Accounts also, generally, offer higher yields without compromising liquidity.
Again, Money Market Accounts are also insured by the FDIC and the NCUA, so they carry very little risk to consumers.
What Are the Disadvantages of Money Market Accounts?
Since money market accounts are, in essence, the best of both checking and savings accounts, they do come with restrictions and privilege limits.
Money market account have minimum balance requirements that are typically much higher than traditional savings accounts.
If accounts fall below the threshold, fees are assessed by the issuing financial institution.
The government regulates the flexibility of the account and only permits 6 checking account like transactions in one month.
These transactions include check writing, debit cards, and account transfers (ACH, telephonic, wire, etc.). Money market accounts that go over the transaction limits will be assessed a fee, and transaction privileges can be revoked by the financial institution.
Financial institutions also reserve the right to close the account or convert it into a checking account. Though consumers are limited by the number of withdrawals, deposits are always welcome.
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Money Market Account Pros and Cons
- Insurance Protection
- Check Writing, Transfer, and Debit Card Transactions
- Higher Interest Rate Opportunities
- Availability at both Banks and Credit Unions
- Minimum Balance Requirements
- Potential Fines
- Limited Check Writing, Transfer, and Debit Card Transactions
- Some Savings Accounts have Similar Interest Rates
Who are Money Market Accounts best for?
Money market accounts are likely not best for anyone’s primary checking account because of the transaction limits.
Money market accounts may be a great fit for emergency funds, vacation funds, tax savings accounts, or any other type of account where there is a measure of time before the money is needed.
Unfortunately, the limit of 6 transactions per month or banking cycle are firm and do not compound. In other words, consumers cannot save up transactions for 10 months and burn up their debit card on a vacation in the Caribbean in month 11.
Money market accounts are best for anyone who has a chunk of money they want to earn the most they can on without locking it up in mutual funds, CDs, bonds, or other less flexible vehicles.
Consumers on the fence between savings accounts and money market accounts will want to consider how much money they have to establish the account, maintain the account, and the yields of each type of account.
Money market accounts do typically have higher interest rates, but it’s not an absolute.
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How to Open a Money Market Account
Opening a money market account is a lot like opening a checking or savings account. Anyone interested will want to compare interest rates, minimum deposits, fees and decide which financial institution is best for them given that information.
Money market accounts can be opened online or in person but be prepared to provide your standard identification information.
If the idea of putting your social security number into an online application gives you the heebie-jeebies, you might want to stop into your local brick and mortar financial institution of choice.
Remember: Because money market accounts offer higher yields, they carry larger minimum balances. Account-holders will need to establish the minimum account balance through cash, check, or transfer the same day.