Are money-market savings accounts worth it?

Money-market accounts, which promise a more lucrative home for money you don’t need to access on a regular basis, come with significant caveats and limitations that make them a dubious choice for most consumers.

Mark Lennihan/AP
One dollar bills dropped into a tip jar at a car wash in Brooklyn, N.Y.

The paltry interest rates for checking and even savings accounts these days may leave you tempted to sign up for the money market accounts your bank may be heavily promoting. Such accounts promise a more lucrative home for money you don’t need to access on a regular basis.

We recommend resisting the temptation. While money market accounts are often marketed as "better" savings accounts, with higher rates and the option to write checks, money market accounts come with significant caveats and limitations that make them a dubious choice for most consumers.

Here’s why you should probably say no to pitches for a money market account.

Requirements are Steep While Returns are Modest

A money market account isn’t viable if you're trying to maximize your interest rate on just a few thousand dollars. Although the minimums vary, most brick-and-mortar banks require at least $10,000, and sometimes $20,000 or more, to earn higher rates than the 0.01% APY that you would in a typical savings account. Even then, that higher rate may be as low as 0.04% APY—a very modest improvement.

At some banks, you may be able to waive the minimums and still enjoy those modestly higher rates if you also have another account at the bank. These customer perks are usually called "relationship rates."

You also can’t let the account balance dip too low over the course of each month, or maintenance charges will kick in; these can run anywhere from $10 to $25. At minimum, you'll need to keep your money market balance above $1,000 to $2,000 on each day of the month in order to avoid the monthly charge.

Online Banks May be a Better Alternative

If the primary advantage of a money market account is its higher interest rate, a quick online search will reveal plenty of online savings options that outperform the top rates offered by money market accounts at traditional banks. Many online-only banks offer 1.00% APY or better on their standard savings accounts, and several award that rate without any minimum balance requirement. In addition, online banks typically offer zero monthly fees, so you won't have to meet any requirements to avoid account fees.

The same holds true for checking accounts online. It's fairly simple to find options that not only pay better interest rates than money market accounts, but offer more flexible access to your money through debit cards and electronic transfers. And checking accounts are not subject to the withdrawal limits on a money market account, which restricts the number of checks you can write each month.

Check Writing is Limited – And Alternatives to Checks Aren’t Offered

A few money market accounts do not allow you to write checks at all. Even with those that do, you can only write up to six checks each month before the bank will charge you an excessive withdrawal penalty, decline the transaction or even convert the account to a checking account.

Also, you should consider the faster, cheaper and safer alternatives to writing checks offered by banking options other than a money market account. Virtually every bank allows you to pay bills from any or all of your accounts online, while person-to-person (P2P) payment apps like Venmo or Square Cash allow you to transfer funds far more quickly than by writing a check. The ability to write checks doesn't offer enough utility to justify the higher minimums and low APY on most money market accounts.

This story originally appeared on ValuePenguin.

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