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MMAs are suitable for anyone who wants a safe and accessible place to stash and earn some interest (higher than savings accounts) on their money. But people who open MMAs usually have short-term goals in mind. They may want to build a large pool of money to use in sudden emergencies, for example. Or hold cash in reserve between investment opportunities.

Let’s focus on safety first. Money market accounts from a bank are backed by the Federal Deposit Insurance Company (FDIC) up to $250,000 per account. Credit union customers with MMAs are backed by the National Credit Union Administration (NCUA).

How about accessibility? Most people who work and regularly receive a paycheck funnel their earnings into a plain old checking account that never pays any APY. So instead, why not stash your money in an MMA that pays interest and allows you to write checks?

If you need to write a lot of checks each month, you can open two MMAs with low balance minimums to get around the six-transaction-a-month limit. Or you could open a high-yield checking account.

As of summer 2020, the national average for savings accounts is 0.06 percent, compared with 0.08 percent for MMAs, according to the FDIC.

But those average yields are pathetically low and very misleading, given that there are dozens of well-known banks offering MMAs paying APYs as high as 2.25 percent. Do your homework.

Why Money Market accounts Aren’t for Everyone

If you need a piggy bank to fund regular, monthly expenses, then a money market account might not be the best choice. On the other hand, MMAs may seem to make sense if you’re saving for near-future purchases like a new car or a vacation. But there are also other options you should consider.

For example, certificates of deposit (CDs) — another savings product — offer higher interest rates than MMAs. And like MMAs and saving accounts, CDs are FDIC insured.

The only problem with CDs is accessibility. When you open a CD at your bank, you agree to a “term” dictating how long the bank or credit union can keep your money. Terms can range from one month to 10 years, and the longer the term, the higher the APY.

In my opinion, CDs are a better option than MMAs if you’re saving for a short-term goal (two to five years) and don’t want to touch your money as it grows. If you cash out your CD before the term expires, you’ll lose any interest that the money has earned, and you may have to pay the penalty.