The Best Place for Your Emergency Fund Is a Money Market Account. Here’s Why

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An emergency fund you can’t access isn’t helpful — and neither is one ravaged by inflation. Here’s how a money market account solves both problems. 

Most experts recommend an emergency fund of at least three to six months’ worth of expenses. No matter how small your budget may be, that means you’re going to have at least a few thousand dollars that need to go somewhere. But where?

Sure, you could go full Scrooge McDuck, storing your hoard of gold coins in the vault room of your mansion. But that’s not exactly practical. Moreover, while you want your emergency fund to be easily accessible. Gold in the vault room — or the more common cash under the mattress — has a major drawback: It’s constantly being devalued by inflation.

This begs the question, where can you keep your money so it’s easy to access, but it won’t hemorrhage value from inflation? Why, a money market account!

The APYs can be 70x higher than average

Alright, so I know your first thought is, why not a checking account? Well, the best money market accounts have something nearly all checking accounts are missing: a good interest rate.

The national average APY for a checking account is a paltry 0.07%. Even the top checking accounts tend to have APYs below 1%. With inflation more than three times higher than that, you’re going to lose a lot of value on your emergency fund.

In contrast, our favorite money market accounts offer APYs between 4% and 5%. That’s more than 70 times higher than the average checking account, and two points or more over the current rate of inflation.

You get easy access to cash and checks

So, that’s why not a checking account. But, why not a savings account? The best high-yield savings accounts can easily compete with the top money market accounts when it comes to APY.

The problem comes down to access.

Modern savings accounts make it difficult to access your money in a hurry. Many don’t even offer debit or ATM cards. An emergency fund you can’t access when you need it isn’t very useful.

Money market accounts often come with a proper debit card you can use to get cash from an ATM. (You even make purchases, though I always prefer credit cards over debit cards for that). Additionally, most money market accounts let you write checks, which can be handy in cases a card just won’t work.

Be aware of balance minimums and fees

As with anything else, money market accounts do have a few potential drawbacks. For one thing, they have many of the same annoying fees as checking accounts, like monthly service fees. You can often get these waived by meeting certain balance or transaction minimums, however.

Speaking of minimums, many money market accounts have a minimum balance required to open the account, and some will also have a balance minimum to keep your account open. Even if the account itself doesn’t have a minimum, you may need a certain balance to get the best rate.

Check the account terms and conditions carefully to look for any fees or minimums — and how to avoid them.

Check for new account bonuses or intro rates

Another thing to be on the lookout for are any kind of new account bonuses or introductory deals. For example, some banks may offer you cash for opening and funding an account. Others may provide a better rate for the first year. These offers tend to have hoops to jump through, so be sure to read the fine print.

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