Is a Money Market Account a Good Place for Your Emergency Fund?

An emergency fund is your best protection against unexpected bills hitting your budget like a speeding freight train. There’s no possible way to account for every expense life will throw at you, and it can be a terrible feeling to put a surprise car repair or medical bill on a credit card because you’re otherwise unable to cover the cost.

Experts recommend saving at least three to six months’ worth of expenses for your emergency fund (to figure out how much you should save, have a look at our emergency fund calculator). But honestly, any amount of extra cash can help you out of a jam, so don’t feel bad if it’s hard for you to save.

You’ll also need a safe place to keep your money, and there’s one type of bank account that could be the perfect fit. Let’s take a closer look at money market accounts and why they work for emergency funds.

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Really, a money market account?

Depending on how deep you are in banking and the personal finance space, you might be unfamiliar with money market accounts. These bank accounts are almost like a cross between a checking account and a savings account, with some of the features from each.

Money market accounts earn interest, like savings accounts do. In fact, among bank accounts that allow you to add and remove money while the account is open (unlike CDs, which require locking your money up for the term of the CD), money market accounts have the highest average APY as of this writing, at 0.62%. However, this is an average of all money market accounts, and some online banks are paying much higher rates.

Take a look at our favorite money market accounts and you’ll see that many are paying at least 4%. That could generate a handsome return indeed. If you have a $10,000 emergency fund and you stash it in a money market account earning 4% APY, you’ll make almost $400 in a year if your APY doesn’t change and you don’t add any more money to the account.

Money market accounts also come with check-writing capabilities or a debit card (and sometimes both), just like checking accounts do. It’s this quality that makes them especially great for an emergency fund. When you have a surprise bill to pay, you might need that money immediately, and savings accounts don’t always offer the best access to your money.

I have a high-yield savings account that I opened with an online bank last year, and while I love many things about the account, it was a little irritating that I had to open a checking account to link to it so I could get a debit card. And I still have to transfer money from my savings to my checking if I want access to my saved cash. A money market account makes it easy to reach your money in a pinch.

One potential drawback of money market accounts

Before you rush to open a money market account for your emergency fund, slow your roll and consider one quality of these accounts that might give you pause. Some money market accounts have a minimum balance requirement to open the account or earn the highest APY offered.

This isn’t ideal, especially if you’re still in the process of building your emergency fund and don’t yet have enough money to open the account or to earn a high APY. So if you’re trying to decide between accounts, definitely read the fine print and make sure the ones you’re considering can be opened with a smaller amount of money (or even none at all) and will pay you the best rate regardless of your balance.

If you currently have your emergency fund stashed in your checking account or stuck in a regular savings account and earning no interest, take a closer look at money market accounts. One might just be a great home for your emergency fund.

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