One of the basic rules of personal finance is to make sure you have an emergency fund. An emergency fund is a short-term savings account that provides you with access to money when you need to cover unexpected expenses. It can be a wise idea to have two different emergency funds: One for short-term costs, such as car repairs, and one for long-term problems, such as unemployment. Your short-term emergency fund can find a good home in a money market account.

Money Market Accounts

Money market accounts (MMAs) are those that combine aspects of savings accounts and checking accounts. However, it is important to note that MMAs are considered savings deposit accounts by the Federal Reserve, and there are legal limits placed on the number of withdrawals you can have from these accounts each month.

The main draw of a MMA is that you can write checks (limited, of course) from the account. This means that you have access to the money more quickly than you would if you kept in an online savings account. Additionally, the interest yield on a money market account is usually fairly competitive — much better than you would get on a traditional savings account. This way, you can make the most of your short-term emergency savings, while still having a relatively high degree of liquidity.

How Much Should You Keep in a Short-Term Savings Account?

When setting up your short-term savings account, it is important to recognize that you don’t need to have it stocked with as much money as you would put in a long-term account. Your long-term emergency fund might have six months worth of expenses, but your short-term emergency fun only needs to have enough to get you by for a few days while you access your long-term account, or enough to cover a smaller surprise expense. Many people can do fine with between $1,000 and $3,000 in a short-term emergency savings account.

Remember, though, that you can’t be making a ton of withdrawals from your account when you have a MMA as your short-term emergency fund savings. You should also understand the minimum account balances that some banks impose, as well as possible monthly fees. The good news is that you can usually find good rates on money market accounts, as well as favorable terms.

As you consider your emergency savings plan, think about where to keep your money. A separate emergency fund for short-term needs can be a great idea, and keeping it in a money market account can lead to easier access at reasonable rates.