Are MMAs a Good Investment for 2024?

Ah, these are good days to have some savings -- am I right? Bank bonuses for large deposits in new accounts are getting heftier, APYs on CDs are the highest they've been in almost two decades, and everyone that's anyone is offering generous interest rates on no-fee savings accounts. It seems like everywhere you look, banks are saying, "pick me! pick me!" with high APY offerings in a battle to win our money before savings rates start dropping later this year.

In the midst of all this exciting chatter, there's one bank product that's often overlooked: money market accounts (MMA). These accounts boast high APYs like a savings account do, but have versatile withdrawal capabilities like checking accounts do. Though they have some drawbacks, their unique features might make them a good investment for 2024. Here's why you may want to open an MMA.

Why an MMA might be a good investment for 2024

MMAs combine high yields with flexibility, helping you capitalize on today's high interest rates while minimizing risks associated with certificates of deposit (CDs) and some high yield savings accounts.

MMAs work a bit like checking accounts in that you often have check-writing privileges, allowing you to pay for purchases with money from your account. This differs from savings accounts, which typically don't offer checks. Some MMAs will have ATM or debit cards, giving you another avenue to your savings.

Better yet, many of the best MMAs have no monthly fees, low opening deposit requirements, and APYs over 5%. In fact, when you stack MMAs up against high-yield savings accounts and CDs, there's no significant difference between their current yields. For instance, the Vio Bank Cornerstone Money Market Savings has an APY of 5.30%, which is just slightly lower than the 5.50% APY on today's top-paying 3-month CDs.

Why you might not want an MMA for 2024

For all their unique features, today's MMAs have one glaring weakness: They won't lock in today's high interest rates. In fact, if you have a long time horizon, you'd be better off getting a CD instead.

Like with a savings account, the savings rate on an MMA is subject to change, fluctuating based on market conditions. Recently, that hasn't been an issue for MMA account holders, as interest rates have remained high throughout 2023 and continue to remain elevated in early 2024. But when the Federal Reserve starts hiking rates down -- which will likely happen this year -- you better believe banks will start bringing savings rates down, too.

To be sure, you still have time to earn high interest in a money market account. However, if you can part with some of your savings for three months or longer, you might want to open a high-yield CD instead. Unlike MMAs, CDs let you lock in current interest rates for the duration of your contract. You might pay a penalty for withdrawing money early, but several strategies, like CD laddering and no-penalty CDs, can prevent you from losing money.

Of course, you don't have to put all your money into a CD. Diversification is important, and it could be wise to divide your savings among other products, like MMAs and high-yield savings accounts. Take a look at the pros and cons of each and set up a savings plan for 2024 before interest rates start to drop.