Keeping your emergency savings in a money market account offers a list of benefits that can be hard to find in other types of accounts. Money markets are an interest-earning hybrid of checking and savings accounts. Most money market accounts pay higher interest rates than regular savings and provide debit cards or checks so you can pay for things directly from your account.
Here are six reasons to consider putting your emergency savings into a money market account.
1. You'll Earn a Higher Interest Rate
Generally speaking, money market accounts earn higher annual percentage yields (APYs) than regular savings accounts and, in some cases, nearly as much as high-yield savings accounts and certificates of deposit (CDs). More interest is better than less, and earnings can be especially relevant to emergency savings since emergency funds are meant to be left (mostly) untouched. While your money is sitting patiently, it can—and should—earn interest and grow.
2. Your Funds Are Liquid
Liquid assets are either held as cash or can be converted to cash quickly. Non-liquid assets include:
- Home equity
- Stocks, bonds and investment holdings
- Vehicles
- Jewelry and other valuables
- Tax-advantaged accounts like retirement funds with penalties for early withdrawal
Funds in a money market account are easy to access when you need them. You won't have to factor in stock prices, pay fees or penalties to withdraw your money or sell anything.
3. You'll Have a Built-In Way to Pay
Many money market accounts come with debit cards or checks. Although the number of these transactions you can make in a month may be limited, that may not matter much if you're using a money market account for your emergency funds.
Here's how this feature might help: Say your car breaks down and you need a $3,000 transmission. You can hand over your debit card and pay on the spot, without shuffling money between accounts or using your credit cards. In an actual emergency, having a ready way to pay can really help.
4. You Can Keep Your Emergency Funds Separate
You want your emergency savings to be available, but not too available. When your emergency savings are kept as a cushion in your checking account—or pooled with other savings funds in a single account—you may accidentally dip into emergency funds for non-emergency spending. Moving emergency savings into a separate money market account creates a psychological barrier between emergency funds and your other cash assets, making you less likely to spend them.
5. Your Money Is Insured
Banks and credit unions rarely fail, but when they do, insurance from the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) can save the day. As long as your money market is held at a financial institution with FDIC or NCUA coverage, your funds will be replaced in the event of a failure, up to $250,000 per account holder and ownership type.
6. You Can Make Easy Transfers
If you put your emergency money into a money market at a different financial institution from your other accounts, you could wait three days or longer for money to transfer from one institution to another. This could mean you have to wait a few days to access your transferred funds.
To get around this time lag, look for an account that lets you pay directly from the account with a debit card or checks. Or consider opening a money market at the same bank or credit union you already use, so you'll have access to immediate account-to-account transfers. Alternatively, seek out an account that offers Zelle or another instant money transfer service (and make sure your current bank does the same).
The Bottom Line
You don't have to keep your emergency savings in a money market account, but doing so can help you earn a great APY while keeping your money safe, separate and accessible. Money market accounts are available at most banks and credit unions, as well as online banks and brokerage firms. You may need a minimum balance to open a money market account, but that can also be an incentive to designate more of your savings as emergency funds.