The Pros and Cons of Using a Money Market Account
Money market accounts can be an ideal place to build up an emergency fund or save for something big, but it’s essential that you understand both its advantages and disadvantages before using one. Money market accounts typically offer higher interest rates than regular savings accounts and some even allow you to write checks or use debit cards directly.
1. High Interest Rates
Money market accounts provide an ideal way to save for both short- and long-term goals, though rates can differ between banks, so it pays to shop around before making your selection.
Like traditional savings accounts, money market accounts offer you more flexibility by allowing you to write checks – but with that comes additional fees that could decrease the rate of return you receive on your investment.
Look for an MMA with low minimum deposit and balance requirements to access competitive rates without incurring fees, and make sure it’s held with a bank that’s protected by FDIC or NCUA. SmartAsset’s free tool connects you with trusted advisors who can tailor a solution specifically tailored to meet your needs.
2. Flexibility
Money market accounts offer investors excellent investment options; however, they do come with their own set of drawbacks. Money market accounts often have higher minimum deposit and balance requirements compared to traditional savings or interest-bearing checking accounts.
Additionally, MMAs often limit withdrawal options. Some banks allow only for a select few in-person or ATM transactions each month while others limit debit card and electronic transfers to six per month or fewer.
These accounts are ideal for saving for a future purchase or goal, rather than daily expenses or bills. Furthermore, they typically offer higher yields than traditional savings and checking accounts and are protected by both the Federal Deposit Insurance Corporation (FDIC) for banks and the National Credit Union Administration (NCUA) for credit unions; providing peace of mind knowing your funds are secure.
3. No Minimum Balance Requirement
Money market accounts provide consumers with a convenient means of funding short-term goals, but certain financial institutions may impose restrictions on how often you can withdraw your funds – typically this applies to ATM withdrawals, electronic transfers and debit card transactions.
Fees could eat into your earnings from a money market account (MMA). Some banks charge monthly maintenance fees or transaction limits fees that must be met; these expenses must be taken into consideration when selecting an MMA. Other savings vehicles, like high-interest savings accounts or certificates of deposit (CD), may offer better rates and access more quickly for funds needed quickly.
4. FDIC Insurance
Money market accounts provide greater protection than regular savings accounts and certain checking accounts thanks to FDIC insurance coverage, meaning if your bank were ever to go under, up to $250,000 per depositor and account ownership category would be returned as reimbursements.
An Online Savings or Checking account can be extremely useful when saving for short-term goals, like making a down payment on a home, as they offer greater rates of return than traditional accounts and can generate greater interest for you than regular savings or checking accounts do.
Money market accounts provide competitive annual percentage yields and easy access to funds when needed, however you should check for transaction limits or fees that might apply before opening one.
5. Convenience
Money market accounts provide an effective means of saving for intermediate financial goals such as weddings, vacations or buying a new car – offering an interest rate to give your savings an extra push forward towards reaching the finish line.
Money market accounts also come with the added protection of being insured by the FDIC, providing up to $250,000 protection per depositor and account ownership category in case your bank fails.
Before choosing a money market account, be sure to compare rates and fees. Look for an APY that is competitive while banking with minimal or no monthly fees that could reduce returns. Also keep transaction limits and minimum requirements in mind before selecting your money market account.
