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There’s no question about it — when it comes to your money, safety is a big factor in how you choose to house your nest egg. If money market accounts have caught your eye, you may be wondering just how safe they are.

Money market instruments, specifically, money market accounts can be a helpful (and secure) tool that allow you to earn a return with flexible access to your funds. In this piece, we’ll answer some common questions about money market accounts, including ‘how safe are money market accounts’?

Let’s dig in.

What is a money market account?

Money market accounts are a type of deposit account and function a lot like savings accounts with limited checking account privileges.

The average rate of return on a money market account is 0.08%, according to the Federal Deposit Interest Corporation (FDIC). You generally get better returns with a money market account compared to a checking account, which have a national rate of return around 0.03%.

Note: A money market account is not the same as a money market fund. A money market fund, also called a money market mutual fund, is a non-FDIC-insured investment product.

How does a money market account work?

A money market account works like a hybrid between a savings and checking account because it combines the features of both types of interest-bearing accounts.

Money market accounts allow you to write checks and use ATMs and debit cards for withdrawals, just like a checking account. While savings accounts may allow ATM access, you won’t have check writing capabilities or the ability to make debit card purchases with savings accounts.

You can typically open a money market account through an online bank or financial institution in minutes. You must be 18 or older to open an account. You’ll typically need to provide your legal name and birthdate, a Social Security or tax identification number and a U.S. residential street address. Before you apply, check on the minimum deposit or minimum balance requirements at your bank.

Once you’ve been approved, you can put money into your account from your checking or savings account. Your bank then pays you interest on your balance, according to the terms of the account.

What are the pros and cons of a money market account?

One of the best ways to boil down the reasons for whether a money market account fits your needs is to make a list of pros and cons.

Pros of money market accounts Cons of money market accounts
Higher returns Some financial institutions will require you to carry a minimum balance
Check writing options Fees (some money market accounts charge monthly fees for withdrawing money from non-affiliated ATMs, check writing or excessive withdrawals)
Debit card opportunities Limited transaction options (some financial institutions limit your transaction options)

Are online money market accounts safe?

When you join a FDIC-member bank, you can rest assured that your deposits are FDIC insured up to the maximum amount allowed by law.

Most online banks implement several common security measures to provide a safe banking experience for their customers and mitigate risk for all accounts, not just money market risk. These include SSL encryption, firewalls, anti-virus protection and multi-factor authentication, to name a few.

Pro tip: The best online banks stay on top of industry trends and go the extra mile to protect your information. Check out the Ally Bank security guarantee to see for yourself how we are committed to keeping your personal information secure.

How much money should you keep in a money market account?

You may want to consider putting six to 12 months’ worth of living expenses into a money market account, which can act as your emergency fund. Your emergency fund can cover unforeseen circumstances and financial emergencies such as a car that you need to replace or a family health emergency. It’s important to have a rainy-day fund available for life’s unexpected surprises.

Ally offers a 0.50% annual percentage yield (APY) on all balance tiers, as well as debit card and check access, unlimited deposits and ATM withdrawals, plus six additional withdrawals per statement cycle. Ally’s rate is variable and may change after you open your account.

What’s the difference between money market accounts and other savings accounts?

The difference between money market accounts and savings accounts boils down to rates and access. In general, deposit accounts that offer higher rates of return come with less flexible access, and vice versa. Of course, that’s not always the case, but it’s a pretty good rule of thumb.

For example, you may get a higher interest rate on a certificate of deposit (CD) compared to the interest rate you may get with a money market account. However, CDs usually require you to keep your money in the account for a certain amount of time to avoid withdrawal penalties. You typically can’t add to your balance when you hold a CD either.

Summary

The bottom line is that money market accounts offer benefits beyond both traditional savings accounts and checking accounts. It’s a good idea to compare interest-based returns, fees and required minimum balances among several banks before you decide on the right money market deposit account for you.

Still curious about money market accounts and other online banking topics?

Learn How Money Market Accounts Work