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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 type of 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 FDIC or 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. However, the account will impose 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

are money market accounts worth it

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, which makes them attractive to long-term savers. For example, at time of writing, the average savings account paid approximately 0.13% in interest. At the same time, money market accounts averaged around 1.1% interest.

That said, it’s important to understand that these are only averages. Some money market accounts can offer much higher interest rates than a standard savings account, with rates around 1.35% or even 1.5%. Others can offer less, with rates as low as 0.02% or 0.01%. At the low end, you’re earning interest comparable with 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 many needing you to keep at least $25,000 – $50,000 on deposit before you can access competitive interest rates. Many will also charge you monthly fees of around $5 – $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

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 gaining interest, and then you can spend your money. To restrict saving’s 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 the account minimums and maintenance fees noted in the section on savings accounts, both of which are rarely features of a checking account.

Are Money Market Accounts Worth It?

As with all financial products, the answer is … it depends.

Money market accounts are for savers comfortable with keeping large amounts of money on deposit. If you don’t have the assets to keep a comfortable five-figure sum in the bank, you generally can’t 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 the savings of a portfolio 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 as a place to keep your money while saving up to make a large purchase. In this case, you can set aside money that’s not exposed to the risk of an investment while still generating a higher yield than savings would offer.

Not generally good substitutes for a checking account, depending on a given account’s fee structure money market accounts can be a good substitute for a targeted savings account.

The Bottom Line

are money market accounts worth it

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 qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Most people don’t think much about their bank accounts, but with our checking and savings guide you can make the most of this daily part of your financial life.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/fizkes, ©iStock.com/jacoblund

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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