Young saver, you have learned that savings and checking accounts let you store your cash while earning a little bit of extra money through interest. Good, good, embrace the greed of interest. Muhahaha! Ah, but I hear you complaining that the interest is not high enough! Even on high-yield savings accounts, the interest rate (APR/APY) is so low you make like, what? Two dollars in interest? Pathetic! If only there was another type of bank account where you could make a little more money. Well, it’s worth exploring as a money market account may do just that for you.

How It Works

When you place your money in a money market account, banks and credit unions don’t just want to let it sit around. They want to make more money with it! So, what they do is use your money to make safe investments in bonds.

When the banks and credit unions cash in their winnings, they pass some of their newly won money to you. That means you will be getting a better interest rate on a money market account than on most other bank accounts (although some online banks offer really high-yield savings accounts). Your money will be compounded daily and paid out monthly.

The Pros, Bros?

• These interest rates will make you giggle like a little girl. You will see money market accounts have high enough interest rates that they can stand over checking and savings accounts, and give them a noogie. The cash from this interest rate will be a sweet little add-on to your money. Money’s like a party. The more, the merrier.
• Easy access rocks. Locking your money up may provide higher interest rates, but what if you need it? In some cases, you might have an emergency, but you also might come across a better interest rate or investment. Because money in money market accounts is so easy to withdraw and has a relatively high interest rate, it could be a pretty attractive option.
• Give up the money! A money market has some features that are similar to checking and some that are closer to savings. You can even write checks off some money market accounts or withdraw money through the ATM.
• Still got the safety locked down. They are FDIC or NCUA insured! That means you cannot lose any money you put into the money market account, at least up to $250,000. It’s like when you’re a kid playing the wheels at the fair, and Dad is standing behind you smiling and giving you more money to try to win that 5 foot stuffed Pokémon.

The Cons, Mon?

• Fees are that annoying kid that never leaves you alone. A money market account is not a checking account. While you can withdraw money from the account, you are only allowed to make six withdraws a month without incurring fees, and although you can write checks, you can only write three a month. If you withdraw too many times, you may be slapped with fees or have your account closed. Do not go over the six withdraws. They will take out their fee bat and beat you down. Don’t forget about the other fees either. Thought you escaped them didn’t you! There are maintenance charges and minimum balance fees. They are giving you a higher interest rate because they are investing your money.
• The minimums are not so minimum. Hate to be the downer here, but the minimums really are generally pretty high. So, if you are using your money market account like a checking account, not only can you get fees for making too many withdraws, but if you don’t have a nice little sum in there, you could easily drop below the minimum The minimum could be anywhere from $100 to a couple thousand dollars, but it is generally at least $500. At least.

The Bottom Line

It’s better than stuffing it in a mattress! A money market account is valuable for people who need to stash a big lump of money for a couple of months that they aren’t really going to use except on things like emergencies. You end up making some spare change while being able to access money when you need to. A money market account is like your parents – looking out for your best interests while keeping you in line.