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A money market account (MMA) is generally a safe place for your money. You can open a money market account at a traditional bank, online bank, or credit union, where your deposits are insured.

Even so, money market accounts do come with some potential disadvantages and risks. Read on to learn how money market accounts work, their benefits and drawbacks, and whether opening one is right for you.

A money market account is a type of deposit account offered by banks and credit unions that typically pays a higher interest rate than a traditional savings account while still giving you relatively easy access to your money. However, in exchange for that higher rate, you may need to meet a higher minimum balance requirement. Additionally, MMA rates are variable, meaning they can go up or down at any time.

Money market accounts often come with checks and/or a debit card, making it easy to access the funds in your account. That said, some financial institutions enforce withdrawal limits, so the funds in a money market account may not be quite as accessible as they would in a checking account.

Generally, a money market account is a safe place to put your cash. Unlike investments such as stocks, mutual funds, or even money market funds, the balance in a money market account doesn't rise and fall with the market. In other words, you won't lose money because of changes in interest rates or market performance.

The funds deposited in a money market account are also insured by the FDIC (or NCUA if your account is held at a credit union) up to $250,000 per depositor, per institution, per ownership category. This means that if the bank fails, your money is protected.

Money market accounts may also be a safe way to hedge against inflation. Because they tend to offer higher rates than traditional savings accounts, MMAs may do a better job of outpacing inflation and maintaining the value of your deposits over time.

Plus, while MMAs provide security, they also make it fairly easy to access your funds when you need them โ€” unlike CDs, which may have early withdrawal penalties, and investments, which can be less liquid.

However, it's important to note that there is one situation when your money market account could lose money: incurring fees. Some MMAs come with fees, such as monthly maintenance fees or excessive withdrawal fees. And these fees can eat into your balance. So, when opening a money market account, be sure you can meet the requirements to get fees waived or choose a fee-free account.

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Money market accounts are generally safe and offer several advantages for savers. But they also have a few drawbacks, which are worth evaluating before you open an account.

High minimum balance requirements: Though it's not the case across the board, many MMAs have steep minimum opening deposit requirements, or minimum balance requirements in order to earn the highest advertised rate and/or avoid fees. These may be prohibitive for those without a sizable up front deposit.

Potential transaction limits: Though the Federal Reserve no longer enforces withdrawal limits on savings accounts and MMAs, some financial institutions still do. Depending on where you bank, your MMA may limit the number of certain types of transactions you can perform each month.

Better rates elsewhere: If you're looking for the biggest return on your savings, an MMA may not always be the right choice. High-yield savings accounts and CDs often come with comparable or higher interest rates, so be sure to shop around and compare your options before deciding where to deposit your money.

Potential monthly fees: Some money market accounts may come with monthly fees, but it depends on where you bank. You may be able to avoid monthly fees by maintaining a minimum balance or meeting other criteria, so check on these details before opening an account.

A money market account can be a good option if you're looking for high interest rates, along with the security of a savings account and the flexibility of a checking account. However, it's important that you have enough money to meet an MMA's minimum balance requirement.

On the other hand, if you want to set aside savings without the temptation to spend it โ€” for example, if you're building an emergency fund โ€” you may prefer a savings account or CD.

Finally, some MMAs may have transaction limits, depending on where you bank. So, if you need frequent access to your funds, you may be better off with a checking account.

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