4 Reasons to Get a Money Market Account

1. Easily Access Your Money

Brokerage accounts that are invested in mutual funds or stocks can generate significant returns if the market is in your favor. But these assets aren’t liquid and can’t be tapped without selling shares—potentially at a loss, and perhaps on top of fees and taxes.

A certificate of deposit (CD) doesn’t carry the risks of investing, and it pays out higher interest than traditional savings accounts—but it locks up your money for the entirety of the term and can’t be added to.

With a money market account, your money is safely parked in an account that earns interest and can receive additional deposits, and it’s liquid enough to be accessed anytime. To make it even easier, these accounts usually come with a debit card or checkbook, which you won’t find with a normal savings account.

Here’s the downside: Financial institutions may only let you make six withdrawals or transfers each month. Due to these limits, a money market account isn’t a replacement for a typical checking account that requires frequent purchases or withdrawals. This does, however, make them ideal as a safe spot to store your emergency fund or other savings that you only need occasionally, but may periodically need urgently.

2. Earn Solid Interest

One of the appeals of money market accounts is their interest rates are usually higher than traditional savings accounts.

When the Federal Reserve kept interest rates low, it was cheap to borrow money, but it was challenging to earn a decent return through savings. With interest rates on the rise, you get rewarded more generously for saving money. In other words, it’s the perfect time to check your current annual percentage yields (APY) and look for a money market account that will get you a higher rate. Some money market interest rates are currently as high as 4.55%.

As you shop around, read all of the account terms closely. Sometimes, higher APYs are available in return for higher minimum initial deposits or account balances. Additionally, the way the interest compounds can impact how much you earn. If it compounds more rapidly, such as daily or monthly rather than quarterly, you can earn returns more quickly.

Note that high-yield savings accounts may have higher interest rates than money market accounts, but they are less flexible since they don’t usually come with a debit card or checkbook. If you’re less concerned about having quick money access and more focused on maximizing interest, it’s worth shopping around and doing some comparisons of money market accounts to high-yield savings accounts to ensure you’re getting the best deal.

3. Enjoy Low Risk

Where you save money should be based on your goals. There’s no denying that deposit accounts probably won’t deliver the best returns over time, especially compared to the stock market. But investments are unpredictable, and stocks can tumble and lose value.

While the money you put in money markets is technically invested behind in financial markets, it’s in low-risk investments, and your money is protected (up to a limit—more on that below).

Additionally, you’ll increase your starting balance as you earn interest, especially if you keep adding to your account. Earning interest on your savings can help increase your buying power during periods of inflation.

4. Benefit From FDIC or NCUA Insurance

Traditional deposit accounts, like checking and savings accounts, are insured up to a certain amount by the FDIC (if a bank) or the NCUA (if a credit union). This isn’t the case with investments, where money can be lost without repercussion.

Because money market accounts are deposit accounts, they, too, are insured by these federal agencies. Currently, each money market account is insured up to $250,000 for each account holder. Should the bank go out of business, the government is obligated to give you your money back. Just know that the insurance doesn’t cover beyond that amount, so if you have more than $250,000 in a single account (or $500,000 if it’s a joint account), anything above that is at risk.

Also be aware that there’s a separate financial product called money market mutual funds, which are offered by brokers and are not federally insured.

The Bottom Line

Money market accounts are a low-risk way to set aside money for short-term purposes and let it grow, while offering easy access should you need to tap into it. If you run into a financial emergency, one option is to use a low APR credit card to cover short-term expenses. But the more prudent way to handle unexpected expenses is to have an emergency fund that lets you avoid going into debt when life throws a curveball. For some, a money market account may be the ideal place to store this financial fallback securely.