Published in: Banks | March 5, 2019

4 Times to Consider a Money Market Account

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If you find yourself in one of these positions, then a money market account can be your best asset.

A notebook, a wad of bills, and a calculator sit on a table.

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Millions of people open bank accounts every year, and financial institutions try to tailor their account offerings in a way that will appeal to as many customers as possible. Most people looking for their first bank account tend to go with basic checking accounts that give them maximum access to their money, either through writing checks or by providing access via a debit card. Then, once you've built up a history of using a checking account responsibly, the next step for most people is to open a savings account that will let you earn a return on the money that you set aside.

By contrast, many savers have never even heard of money market accounts. That's a shame, because in many ways, money market accounts combine some of the best features of checking accounts and savings accounts into a single financial vehicle. Used properly, a money market account can be extremely useful and dramatically boost the amount of interest you're able to earn on your money. Below we'll look at four specific situations in which it makes sense to get a money market account.

1. When you want to write checks -- but don’t have to write many of them

You'd think that in an era in which electronic payments are becoming the norm, the idea of writing physical paper checks would seem almost quaint. Yet millions of people still open regular checking accounts with the intent of using paper checks to pay their bills, and even as electronic payment alternatives become more readily available, old habits die hard for many people.

One big perk of money market accounts is that they allow accountholders to write checks against their accounts. However, it's important to understand that money market accounts aren't checking accounts, and federal banking regulators treat the two types of accounts very differently. With a standard checking account, you can write as many checks as you want over the course of a month without running into any sort of trouble. However, money market accounts aren't in the same regulatory category as checking accounts, and so there's a limit on how many checks you're allowed to write against a money market account each month.

The specific limit is that you can't write any more than six checks during your money market account's billing cycle. Also, you can't get around the limit by using online bill payment or similar electronic transfers because most of the transactions also count toward the six-withdrawal monthly limit. However, ATM withdrawals or transactions made in person at a bank branch do not count as unauthorized transfers. So as long as you don't need to write too many checks, a money market account can be a perfectly viable option.

2. When you want to earn more interest

The other big benefit of money market accounts is that they tend to offer higher rates of interest than many other types of bank accounts. Checking accounts often pay little or no interest, especially at big financial institutions that emphasize premium service over rewarding their customers with higher interest rates. Even standard savings accounts often pay relatively small amounts of interest to their customers.

Money market accounts are seen as being higher-end bank account products that warrant paying a higher rate. In fact, some money market accounts explicitly reward higher-value customers by offering tiered interest rates. Under these provisions, a money market account might pay a base interest rate on deposits up to a certain amount, but then pay a higher rate once your balance goes above predetermined levels. That can make money market accounts highly attractive to customers with the money to take full advantage of them.

3. When you have enough money to cover high minimum balance requirements

The benefits of money market accounts make them attractive, but they come at a price. With most money market accounts, you'll need to maintain a larger minimum balance in order to open the account. If your balance falls below those levels, then you might have to pay large account maintenance fees that more than offset the benefits of higher interest rates and other perks that money market accounts offer.

Before you decide to go with a money market account, you should be able to commit to keeping your balance high enough to avoid monthly maintenance charges and to earn the best rate of interest that your account offers. Settling for less dramatically eats into the value of a money market account. If you can't afford to keep enough money to meet minimum balance requirements, then you'll generally be better off delaying opening a money market account and keeping your money in checking or savings accounts until you're in a position to do so.

4. When your bank gives you extra incentives

Finally, some banks like to reward customers that have extensive banking relationships, offering cross-selling opportunities that can lead to additional perks for top customers. Opening a money market account can be a good way to broaden your relationship with your bank, and at some banks you'll even get preferential treatment like a higher interest rate or savings on certain bank fees if you combine a money market account with other accounts, such as a mortgage, credit card, or other type of bank account.

Clearly, opening a money market account doesn't make sense just to get these perks. But if you could benefit from a money market account for other reasons, then accepting extra benefits is just icing on the cake -- and there's no reason not to do so.

Be smart with your money market account

Money market accounts can be great ways to save, but they don't fit for everyone. Even so, when you find yourself in one of the situations described above, it's time to seriously consider whether a money market account could be the best solution to help you earn more on your savings. With the higher interest rates that they often offer and the potential to get extra incentives on the side, talking to your bank about whether money market accounts would be the right solution for you makes a lot of sense.

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