Money market account pros and cons
Weighing your savings options
September 28, 2022 3 min read
Modern-day life can be really expensive (how’s that for an understatement?). You understand how important it is to set money aside for life milestones, like buying a house, college tuition or retirement.
So what kind of account should you be stashing your cash in? Could a money market account, also referred to as an MMA, be your best savings option?
Like with any decision, weighing the pros and cons of money market accounts can be a good first step. Take a few minutes to compare money market account advantages and disadvantages before deciding how this type of account could fit into your financial plan.
What are the advantages of a money market account?
Before choosing where to set aside your money, here are some important money market account advantages to mull over:
- Safety: A nice benefit of money market accounts is that they can be low-risk savings options.1 Plus, MMAs that are insured by the Federal Deposit Insurance Corporation (FDIC) offer additional protections against bank failures.
- Savings rate: Money market accounts can sometimes have higher savings interest rates, the percentage of money you earn each year, than a traditional savings account.1 If that’s the case, then a money market account can help you earn more than a savings account might.
- Easy access: Money market accounts can offer you immediate access to your funds, almost whenever you may need it.2 MMAs often offer the ability to write checks or access cash via debit card. And know you can typically withdraw without paying a fee as you might with a certificate of deposit (CD). Just keep in mind, MMAs may have monthly withdrawal limits.
- Flexibility: With online and in-person banking options, MMAs can give you quick access to your money by withdrawing, transferring or writing checks. Some banks even give you ATM access with a debit or ATM card.2
What are the risks of a money market account?
On the flip side of the same savings coin, there are also money market account disadvantages to think about before deciding on a place to put your funds:
- Balance requirements: When opening an MMA, some banks require you put down a higher minimum deposit than you’d need with a checking or savings account.2 You also might have to keep a minimum balance at all times. If you don’t meet these requirements, you could be charged monthly maintenance fees. You might want to consider if you can afford that minimum balance consistently before opening this type of account.
- Limited transactions: MMAs may have monthly withdrawal limits. Savings accounts may have similar transaction limits, while checking accounts don’t usually have any transaction limits.3
- Varying savings interest rates: Saving interest rates on a money market account might change depending on the overall market’s interest rates at a given time.4 The reason this might be a disadvantage is because the rate could fall (which means you’ll earn less interest), but it could also rise (which would be a good thing and could lead to more interest earned). The tough thing is that you can’t predict what the market will do.
- Growth opportunities elsewhere: If you don’t plan on dipping into these funds any time soon, you might want to consider different saving options which can have higher return rates in exchange for you not accessing your money.
Can you lose your money in a money market account?
Technically, no. Money market accounts can be lower-risk savings options. However, you still want to make sure you meet your bank’s requirements. If you go over your monthly transaction limits or can’t maintain a certain minimum balance, you could get hit with penalty fees.2
Is a money market better than a savings account?
That’s really up to you and what you’re looking for! There are a few differences that you may want to be aware of.
First, rates can be higher with an MMA. Access to your money is also typically a bit easier with an MMA since they often allow you to write checks and withdraw from ATMs.2 (But remember, this easy access could tempt you to spend more than you would with a savings account). And finally, transaction limits can vary across accounts. Check with your bank so you know the specifics of their savings accounts or MMA offerings.
Starting to save money now can help set you up for a successful financial future. It can also give you wiggle room for unexpected expenses—good or bad—like a surprise family trip to Italy or hospital bills from a broken leg.
Before deciding if this plan could help you achieve your savings goals, weigh money market account risks with the benefits. Finding your right savings fit might take a bit of research and a deeper look at your finances, but it can be worth it when you decide on the right place for your cash.