Money Market Account Pros and Cons: Benefits, Risks and More (2024)

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Money market account pros and cons

A money market account is a type of savings account offered by credit unions and banks. Money market accounts are sometimes called money market deposit accounts or money market savings accounts.
Money market accounts are interest-bearing accounts, meaning that interest is paid on the account balance. Most money market accounts come with a debit card and checks, to make financial transactions easier and more convenient.

There are various money market account pros and cons you should consider depending on your financial goals. One of the best money market account advantages, however, is they can be a great way to save for large purchases or build up an emergency fund, due to their higher interest rates compared to traditional savings accounts. On the other hand, there are a few money market account disadvantages to consider, including limited transactions allowed each month.

At Credit Union of Southern California (CU SoCal), we make opening a money market account easier.

Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.

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What are money market accounts and how do they work?

A money market account is a type of savings account offered by credit unions, banks, investment companies, and other financial institutions. Money market accounts are sometimes called money market deposit accounts or money market savings accounts.

Money market interest rates tend to be higher than most savings account interest rates, which makes money markets a good choice if you have a large sum of money that you need to keep accessible.

Advantages of money market accounts

Before you open an account, consider these money market account advantages:

Flexibility. A money market is a type of savings account that can be used to save for long- or short-term financial goals and can be linked to your checking and traditional savings accounts, so you can easily transfer money between your accounts as needed.

Competitive rates. Money market accounts can have a higher interest rate than a savings account, making them a good option if you need to set cash aside but keep it liquid.

Deposit insurance. All money market accounts are insured. If the account is held at a bank it is insured by the Federal Deposit Insurance Corporation (FDIC). A money market held at a credit union is insured by the National Credit Union Administration (NCUA).

Availability. Although there may be restrictions on how many withdrawals you can make each month, your money is more accessible compared to a CD or share certificate, which locks the money in for a period.

Are money market accounts worth it?

Money market accounts are worth it as a savings tool and can earn higher interest than interest-bearing savings accounts. If you need to keep your money accessible and can meet the minimum balance requirement, then a money market account can help you build your savings. The only potential downside of money market accounts is that there are other types of accounts and investments that could earn a higher interest rate.

What are money market accounts good for?

Because money markets can be linked to your checking and savings account, you can move money freely into your money market wherever you want to put aside extra cash. This is one of the main benefits of a money market account.

A money market account can help build savings while keeping your money liquid for:

• Emergency funds
• Big expenses
• Tax payments

Can you lose money in a money market account?

You cannot directly lose money invested in money market accounts, as the funds you deposit and the interest the account earns are yours and you can close the account at any time and retrieve your money. Furthermore, money market accounts held at credit unions are insured by the NCUA, while money market accounts held at banks are insured by the FDIC, both of which insure funds for up to $250,000 per account. However, if the financial institution were to default, you could lose part of your funds if you had more than $250,000 in your account(s).

Indirectly losing money, however, is a downside of money market accounts. Indirect loss can occur if the interest rates tied to the account fall, thus diminishing the initial return value of your account. Additionally,a money market account could lose money if the account is charged fees, due to the account holder not adhering to the financial institution’s rules and conditions of the account.

Alternatives to money market accounts

Certificates of deposit (CDs) and share certificates. At credit unions, including CU SoCal, certificates of deposit (CDs) are known as “share certificates" or "certificates.” A certificate account is opened for a specified period during which the account earns interest, and the money may not be withdrawn without penalty during this time. When it comes to certificates vs. money markets, certificate interest rates tend to be higher than money market interest rates.

High-yield savings accounts. Savings accounts almost always earn interest, and you may be able to locate an account that pays a higher interest rate than a money market account.

When it comes to savings accounts vs. money markets, start by thinking about your savings goals and whether you need frequent access to your money (savings account), or if you don’t mind somewhat limited access to funds (money market account).

Why savvy consumers choose CU SoCal