Is an MMA the Best Place for Your Emergency Fund Now?

Building an emergency fund is a major cornerstone of personal finance. If you've got three to six months' worth of cash in the bank to cover unplanned bills or even a job layoff, you'll sleep better at night and may be able to avoid expensive debt during a financial setback.

You might assume that a savings account is always the best choice for your emergency fund, but money market accounts (MMAs) come with certain advantages that could make them a perfect choice. Let's learn more about MMAs and see why they're worth looking into -- and one reason why the humble savings account might be the superior pick, depending on your savings circumstances.

A high APY

With higher interest rates, it's worth reevaluating your banking relationship if you're still earning a super low rate on your savings. Just like CDs and savings accounts, money market accounts have higher APYs these days.

According to the FDIC, the average rate on a money market account is currently 0.70% -- but you can find rates of 4.0%, 5.0%, and higher on our list of the best money market accounts. That translates to real money earned on your savings. Maintain a balance of $10,000 in a money market account with a rate of 5.0% and you could earn a little over $500 in a year.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of January 10, 2025. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of January 10, 2025. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

While it's important to note that MMAs have variable interest rates just like savings accounts do, you're still likely to benefit from a higher rate for now. The Federal Reserve may lower the federal funds rate in September. And when it does, we'll likely see rates fall on deposit bank accounts, too.

One-step cash access

The real differentiating factor between a savings account and a money market account is the accessibility. Savings accounts generally don't come with one-step access to your money. You usually won't be issued a debit card to spend or withdraw cash directly -- instead, you'll need to transfer money to a checking account to access it.

But money market accounts come with one-step cash access. Specifically, you'll often receive a debit card so you can spend from the account, and in some cases, you may even be able to write checks from your account.

You'll still likely be subject to a limited number of transactions every month (some banks still enforce Regulation D rules that limit account holders to six or fewer convenient withdrawals per month), so an MMA can't take the place of a checking account. But when the minutes count, it'll be great to use your emergency cash more easily.

When is a high-yield savings account better?

One possible downside of money market accounts is that some have high minimum required deposits to open or maintain the account. For example, you might need $2,500 to start out with.

When you're new to saving money, you might not have that much cash ready to deposit in a brand-new MMA. But the best high-yield savings accounts generally don't have a minimum deposit requirement -- you could open one with $0 and watch your balance grow over time as you make contributions.

If you're looking for a new home for your emergency fund, a money market account is worth further consideration. These fall under FDIC insurance protection, too, so you won't have to worry about whether your cash is safe in the event of a bank failure.

I recommend making it a goal to save an emergency fund starting ASAP, no matter which account you pick. You can use Motley Fool Money's emergency fund calculator to see how much you might need to cover six months' of expenses. Don't be discouraged if the amount seems out of reach -- any amount of money saved is an investment in future peace of mind.