Like almost any financial product, money market accounts have a number of advantages, but they also have some disadvantages that could make them less appealing for some people.
Withdrawal and transfer restrictions: Regulation D is a federal law that restricts you to six “convenient” transactions — such as withdrawals and transfers — from savings and money market accounts per month. These accounts are meant to be vehicles for savings, so the Federal Reserve actively discourages taking money out of them too often.
Only certain types of transactions are subject to Regulation D, including:
- Electronic transfers
- Wire transfers
- Debit card purchases
- Check withdrawals
- Automated bill pay
Transactions that aren’t subject to Regulation D include:
- Deposits
- ATM withdrawals
- ATM transfers
- In-person transactions at a bank branch
Funding requirements: Money market accounts typically have higher opening and ongoing balance requirements than savings accounts. This is especially true for money market accounts that offer the highest rates. Banks do this because they want to encourage you to deposit large sums of money that they can use to make short-term investments, but these requirements can work in your favor too.
As I mentioned above, money market account APYs can be slightly higher than savings account APYs, but you won’t notice a huge difference in the amount of interest you earn unless you deposit a lot of money. By requiring a larger deposit, the bank is helping to ensure you earn more meaningful interest payments.
It’s not uncommon for money market accounts to have four- or even five-figure opening deposit requirements — at least if you want to earn the advertised interest rate. Some banks enable you to open a money market account with less money, but you’ll earn a lower interest rate until your balance rises to the designated level. There are a few money market accounts with low or no opening deposit requirements, but these are less common.
Ongoing balance requirements are usually tracked daily. They are not always the same as the opening deposit requirement. If you fall below the minimum balance, your bank will penalize you by making you pay a monthly fee or by dropping your interest rate until your balance exceeds the minimum balance requirement again.