A money market account is a financial product that allows you to store your funds and gain interest on the funds in the account. Money market accounts combine some of the best features of a checking account and a savings account. You can open these accounts at banks and credit unions.

Money market accounts offer unlimited access to ATM withdrawals, but you cannot withdraw money or make payments over six times a month from a money market account by check, debit card, draft, or electronic transfer. Withdrawals or payments by ATM, in person, by mail, messenger, or telephone check (where payment is made by using your checking account number and bank routing number) do not count against the six-transaction limit. 

How does a money market account work?

When you decide to open a money market account, you will select a bank or credit union that offers the best rates. A money market account will have a minimum deposit amount that is required when you open the account. The account will have a minimum balance that must be maintained, but aside from that, you can withdraw and deposit without restriction as long as the minimum balance is maintained. 

Money market accounts often have higher interest rates available than a standard savings account. This results in you earning more on the money you keep in the account because money market accounts have a variable interest rate, allowing you to earn a return on your money.

Many banks and credit unions offer tiered money market accounts. This means the higher the balance in your money market account, the higher the annual percentage rate your account has. This is a way your financial institution can reward you for maintaining a higher balance in the account. 

Pros and cons of a money market account

There are always advantages and disadvantages to any financial product. It is important to understand what these are when choosing a financial product that will best meet your needs.

Pros

• You can earn interest: Money market accounts pay competitive interest rates
• Your money is safe and insured: The bank insures your money for up to $250,000 per account owner with accounts at a bank or credit union.
• Your cash is accessible: Money market accounts can come with a debit card and checks.

Cons

• Fees: The banks may charge a monthly fee on money market accounts. It may be possible to have the fee waived if you meet the daily minimum balance requirement. Ask your bank for details.
• Large minimum deposit requirements: A money market account will typically require a considerably larger deposit than a savings account. These deposits can range from $1000 to $25,000.
• You can find higher yields elsewhere: Other products with your financial institution may offer a more competitive yield.
• They offer only limited access to cash: Because of a federal rule, you cannot make over six withdrawals from your money market account per statement cycle.

Money market alternatives

There are other financial products available that may offer similar benefits to a money market account. We will review their differences and similarities so you can select the product that best suits your needs. 

Money Market Account vs. Savings Account

Similarities 

• Both accounts pay interest
• Intended to help you save money

Differences

• Minimum account balance required (money market accounts usually require a higher minimum balance)
• Money market account will issue checks and a savings account will not offer this feature

Money Market Account vs. Certificate of Deposit (CD’s)

Similarities

• Intended to help you save money 
• Both accounts pay interest

Differences

• Money is more easily accessible in a money market account
• CD’s offer higher interest rates but money can be inaccessible for fixed periods

Money Market Accounts vs. Checking Account

Similarities

• Each offer checks
• Money is readily accessible

Differences

• Money Market accounts pay interest while checking accounts do not
• Money Market account not designed to be used like a checking account so not as accessible and limits the amount of withdrawals a month
• Checking accounts have no limit on the amount of withdraws you make

Are money market accounts worth it?

Money market accounts can be a great option if the account’s features meet your financial needs and expectations. Opening a money market account to save money for short- or long-term goals is a great option. 

You might open a money market account if you:

• Need a convenient and secure place to keep emergency money if income is lost in your household
• You want to earn interest but cannot tie up money for a fixed length of time like in a Certificate of Deposit (CD)
• Want to save for a yearly vacation
• Save for a down payment on a new car
• Are interested in saving money toward a down payment on a home

Conclusion

There are many reasons people open up a money market account. Money market accounts can help save money and allow you to access the money if needed. 

A money market account has many of the features of a savings account and a checking account. Although there is a limited amount of withdrawals allowed per statement period this can encourage saving while leaving money accessible. Traditional savings accounts rarely come with checks or a debit card so the money can be difficult to access and CDs require you to keep your money parked for a set period. 

So depending on your financial situation and goals, a money market account may be the best option for you and your family.