3 Reasons to Put Your Emergency Savings in a Money Market Account

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Earning interest *and* getting easy access to your money? Yes, please. 

An emergency fund is like the ultimate financial security blanket. If you’ve got emergency savings, you can tap into that money when you incur an unexpected expense, like a big car repair bill, that you wouldn’t be able to pay for outright from your regular earnings. In more extreme situations, an emergency fund can also help keep you afloat if you’re laid off from your job.

You can use an emergency fund calculator to figure out how much you personally might want to save (as it will depend on your income and your bills), but a common (and conservative) rule of thumb is to save at least three months’ worth of expenses.

If you’ve got that money saved up, you might be wondering where to keep it. It needs to be accessible to you, and ideally, it shouldn’t just sit idle, actively losing value to inflation (as it would if you kept it in your checking account). A high-yield savings account is a good choice, but also consider a money market account (MMA).

Money market accounts are an interesting hybrid of checking and savings accounts. And just like those two accounts, they even come with FDIC insurance, meaning up to $250,000 in one will be returned to you in the event that your bank fails. Here are three reasons why their features make them a great choice to house your precious emergency fund.

1. Higher APY

The ability to earn a higher interest rate on the money kept in one has long been a good reason to consider opening a money market account. The best accounts out there are currently paying 3% APY or more on your money, so if your emergency fund amounts to, say, $10,000, and you earn 3% on it, you’ll make $304.16 on that money in just the first year. If you don’t tap the account, and leave that earned interest alone, even if you add no additional money to it, the following year you’ll earn that 3% on $10,304.16 — coming to $313.41. Ah, the miracle of compound interest.

2. Checks or a debit card (or both)

Since online savings accounts are paying comparable interest to MMAs these days, you may wonder why you should bother with one over a savings account. With a money market account, you’ll get easier access to your money. Many savings accounts don’t make it easy to withdraw cash, and you’ll often need to link one to a checking account so you can use an ATM or debit card to access the money (after you’ve transferred it to that checking account). This is a downside of savings accounts that MMAs don’t share.

MMAs often come with check-writing capabilities or ATM/debit cards, meaning you get access to your cash in just one step, no transferring required. Do note that MMAs are subject to Regulation D (meaning some banks limit how many transactions you can make with them), and so they likely can’t take the place of a checking account as far as withdrawals are concerned.

3. Incentive to keep the account funded

Finally, you should know that some MMAs have a minimum balance requirement, while generally high-yield savings accounts do not. While this could be framed as a downside, I think it’s actually an advantage when it comes to your emergency fund. After all, ideally, this is money you’re not dipping into very often. If you must maintain a minimum balance to earn the highest APY or avoid being charged bank fees, you’ll end up with an incentive to leave money in the account. That said, you’ll still be earning interest on it, and be able to easily withdraw money if you need to, thanks to having checks or a debit card.

If you need a new home for your emergency savings, money market accounts are definitely worth considering for all the reasons above. Keep your financial security blanket in the best account for your needs, and watch it grow while it stays safe.

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