Money market accounts are deposit accounts that function like a blend of savings and checking accounts. You can get the healthy interest rates of high-yield savings accounts while having easier access to your money much like with a checking account.
Despite the benefits of money market accounts, they come with unique pitfalls that can negate your earnings if you're not prepared. Get up to speed on these six common mistakes to avoid with a money market account to make sure your savings work for you rather than against you.
1. Failing to Shop Around
Money market accounts aren't one-size-fits-all; they come with a wide variety of terms and benefits across banks and credit unions. While federal regulations insure money market accounts for the same amount as checking and savings accounts, financial institutions can set other features, like the annual percentage yield (APY), fees, withdrawal limits and deposit and balance requirements. Additionally, some accounts might offer a debit card or checkbook for easier access to funds, with varying fees for these perks.
When you're opening a money market account, don't automatically go with one at your existing bank or credit union, or the first one you see in an online search. Comparison shop across multiple financial institutions to ensure you're scoring the best interest rate with the best features and fewest fees and restrictions.
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2. Withdrawing Too Often
A money market account isn't meant to work like a checking account that you withdraw from often. Previously, federal law limited all savings accounts, including money market accounts, to only six withdrawals per month. In 2020, the Federal Reserve removed that requirement, but some banks and credit unions have continued to impose similar limits.
Read the account terms to find out if your financial institution still limits monthly withdrawals. If so, you may be prevented from making more than six withdrawals a month, or they may be permitted to go through—in exchange for fees that eat into your gains and savings. If you need to tap this money often, you may be better off putting some in a checking account, and keeping only long-term savings like your emergency fund in a money market account.
3. Not Having Enough for an Initial Deposit
One factor that sets money market accounts apart from other savings accounts is they sometimes require a larger minimum initial deposit. While there are plenty of options with no initial deposit, or a small one, you may find money market accounts that require at least $2,500 upfront or to earn any interest. If you don't read the terms carefully, you may find yourself being asked to start with a larger chunk of change than you have available, or you might not earn enough interest to make opening the account worth it.
Don't fret if you don't have much money to start with; look for an account that has no minimum deposit requirement since not all banks and credit unions charge them. Alternatively, some financial institutions offer tiered interest rates, with more flexible terms and lower deposit and balance requirements in exchange for a lower APY.
4. Letting Your Balance Get Too Low
In addition to the minimum initial deposit, it's common for money market accounts to require account holders to maintain a certain balance at all times. Some banks have tiered systems where you earn more interest depending on which balance you keep, so you can also miss out on interest earnings if you don't keep enough money in the account on an ongoing basis.
If your account has a minimum monthly balance requirement and you fail to meet it, you will likely be charged a fee, often around $10 to $15 per month. This can become a problem if you need the money for a large purchase but don't have enough to deposit back in its place. Repeatedly getting dinged for not meeting balance requirements can even result in your account getting closed and you having to move your money elsewhere.
5. Ignoring the Fine Print
Whether you already have a money market account or are researching your options, it's important to familiarize yourself with the fine print so you're not blindsided by any other fees or rules.
For example, some money market accounts come with monthly maintenance fees (though sometimes this is only charged if you don't keep a minimum balance). Some money market accounts charge fees to order checks or if you use more than a certain number of checks per month, and you might also face ATM fees, especially if you go out of network. On the other hand, some money market accounts allow unlimited ATM or in-person withdrawals. It's not fun by any stretch, but reading the fine print closely can save you money and headaches since account details can vary so much across financial institutions.
6. Missing Out on More Earnings Elsewhere
Money market accounts can have competitive interest rates, but at most financial institutions, the best APYs are reserved for those who deposit and maintain hefty balances.
If you don't have much savings to start with and you're opening a money market account to build and grow your savings, your interest earnings will be minimal until you reach higher balance tiers. If you're starting with a low balance, you might get more benefit from other ways to save, such as a high-yield savings account that provides a solid APY regardless of balance, or a certificate of deposit with lower deposit requirements.
Find What Works for You
There's no one best type of account to help you save money; it comes down to how much you have available to deposit, what balance you can maintain and how you want to access your money. For those who've already built some savings and want to keep it parked and growing, a money market account can be a solid option—especially since it typically comes with ATM or check access, unlike other types of savings accounts.
However, if you're just starting to build your savings or you don't want to stress about keeping a minimum balance, make sure to explore and compare other options. While they don't have the same access options, high-yield savings accounts have fewer restrictions and could earn you a better APY.
And remember, there's no rule that you can only have one type of account. You may find that it works well to have a money market account for a long-term savings goal while using other accounts with fewer restrictions for shorter-term savings.