Maybe you love the accessibility your checking account provides but hate that it doesn’t earn interest. If this is the case, a money market account may be worth considering. Money market accounts offer the flexibility of checking accounts, but they’re also interest-bearing like savings accounts, meaning you earn money on your deposits.

While money market accounts have perks, they also have some drawbacks to consider. Here’s what you need to know about money market accounts, their pros and cons, and how to open one.

What is a money market account?

A money market account is a unique type of deposit account with checking and savings account features. These accounts generally come with debit cards and checkbooks, similar to what you’d get with a checking account.

But unlike checking accounts which typically don’t earn interest, money market accounts often have variable interest rates comparable to high-yield savings account rates. Tiered rate structures may apply with money market accounts, with the best rates reserved for the highest balances. Depending on the credit union or bank, you may also need to meet a minimum balance requirement.

But a money market account could be a good choice if you can easily meet the minimum balance requirement. These accounts offer the accessibility you’d get with a checking account, coupled with the decent interest earnings you’d get with a savings account.

Preparing to open a money market account

Doing your due diligence before opening a new money market account is key. Many banks and credit unions offer these accounts, and you can compare new account options online at your existing institution or at another local branch. Here’s what to look at as you prepare to open a new account:

• Interest rates: Different banks and credit unions offer different interest rates, and in general, a higher rate is more favorable because it’ll help you earn more interest on your money. Tiered rates are common with money market accounts. For instance, you might get a 1.15% rate with a $1,000 balance and a 4.05% rate with a $10,000 balance.

• Fees: You’ll want to consider account fees and how they could impact your overall earnings, too. Common fees for money market accounts include monthly maintenance and low balance fees.

• Minimum balance requirements: Certain money market accounts may require higher initial deposits or minimum balances than traditional savings accounts. For instance, you might need to maintain a balance of $2,000. Minimum balance requirements vary by institution.

• Lender reputation: Research lender reputation before you sign up for a new account, especially if you’re considering a bank or credit union you’re unfamiliar with. Ensure the institution is FDIC- or NCUA-insured and look at feedback on consumer review sites like Trustpilot and Consumer Affairs.

• ATM access: If free ATM access is important to you, learn more about prospective accounts’ ATM networks and whether you can easily access your money for free locally.

Steps to open a money market account

1. Choose a financial institution

After thoroughly researching your options, choose your bank or credit union and money market account. Consider preparing a short list of potential options and narrowing it down to one as you move forward.

2. Gather necessary documents

You’ll need to provide certain documents and information to open your new account. The bank or credit union will probably ask for your Social Security number (SSN) or Individual Tax Identification Number (ITIN), a valid government-issued ID like your driver’s license, and proof of address. Gathering this information before you open an account can simplify the process.

3. Review account terms and conditions

Before opening an account, ensure that you review the account’s terms and conditions. These documents outline potential fees, minimum balance requirements, and more. You may want to review them for each account on your shortlist before choosing the best option.

4. Sign up for an account

Once you’ve taken these steps, it’s time to open your account. Many institutions let you sign up for a new account online, which can be convenient. Others let you sign up in person or over the phone. Choose the option that’s most comfortable for you.

Funding a money market account

As mentioned, money market accounts often have an initial deposit or minimum balance requirement, which may be higher than you’d see with checking or savings accounts. Minimum balances can vary depending on where you choose to open an account.

If your new account requires you to make an initial deposit, you can generally do so by transferring money from an existing account or depositing a check. To ensure that your balance continues to grow, consider setting up automatic transfers from your savings account to your money market account. You can generally do this by logging into your online account, clicking ‘transfer’ or ‘transfer or pay,’ and creating a new monthly transfer.

Managing a money market account

In general, money market accounts are fairly easy to manage. The main things you’ll want to do are tracking interest earnings and avoiding fees. Since rates can change over time, tracking how much interest your money earns can help you ensure your account stays aligned with your financial goals. And doing things like meeting or exceeding any minimum balance requirements can help you avoid fees.

Make it a point to log into your money market account online regularly. Doing so will offer insight into how your savings are performing.

Things to consider when opening an MMA

While money market accounts have many perks, they also have a few drawbacks. Variable interest rates are a potential downside, as it’s possible your interest rate will decrease as the market changes. For example, your rate may be above 4.00% when you open your money market account, but it could drop to 3.00% if your bank adjusts its rates.

Fees are also a key consideration, as these charges could hurt your balance over time. Take care to avoid fees as much as you can.

There’s also the unlikely possibility that your financial institution could fail. But assuming you’ve opened an account at an FDIC- or NCUA-insured institution, your balance will be protected up to $250,000 if this happens.