How to Open a Money Market Account

If you want to maximize your savings while maintaining easy access to your cash, a money market account could be right for you. You can open a money market account at a bank or credit union, often with no minimum deposit or balance requirements.

Here's what you need to know about how to open a money market account, what features to look for and alternative options for saving cash.

What is a money market account (MMA)?

A money market account (MMA) is an interest-earning deposit account you can open at a bank or credit union. MMAs typically earn a higher annual percentage yield (APY) than a standard savings or interest-bearing checking account. While certificates of deposit (CDs) may provide higher APYs, an MMA could be a better option if you want easier access to your cash. That said, some MMAs allow only a certain number of withdrawals before charging a fee.

Some money market accounts have higher minimum deposit and balance requirements than traditional savings accounts. If your MMA falls below the specified threshold, you may not earn the full APY rate.

To protect your savings up to $250,000, open your MMA at a financial institution insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA).

How to open a money market account

Many banks and credit unions offer money market accounts with competitive rates. Here are the key steps to opening an account.

1. Compare accounts. Since MMA features, rates and account fees differ by financial institution, it’s worth taking the time to shop around. Consider the following metrics when researching potential banks and credit unions:
   • Annual percentage yield: APY refers to the total interest you will earn on your savings throughout the year. Some banks offer tiered APYs, meaning your interest rate will increase as your balance grows. Keep in mind that APYs can fluctuate based on interest rate trends. In some cases, you may earn more by locking your funds in a high-earning CD, which maintains the same rate throughout the entire term (but typically has more severe penalties for early withdrawals).
   • Fees: Watch out for fees that can eat into your money market balance, such as charges for making too many withdrawals, exceeding the ATM transaction limit or letting your balance fall below a minimum threshold.
   • Perks: Some financial institutions offer additional products and services with an MMA, such as bonuses, overdraft protection when linked to your checking account or a debit card, and checks for easier access to your funds.
   • Insurance: Know that your MMA should come with FDIC insurance or NCUA insurance to protect your funds up to $250,000 per account.
2. Prepare to apply. You can usually open a money market account online, over the phone or in person at a local branch. While the exact paperwork will vary by financial institution, you may need to provide personal information, including:
   • Tax identification number or Social Security number
   • Government-issued form of identification (such as a driver’s license or passport)
   • Verification of address (such as a utility bill)
   • Employment status
   • Annual income
3. Make a deposit. Some banks require a minimum deposit to open your MMA, while others let you add funds later. You may need to maintain a minimum balance to earn the advertised APY and avoid monthly maintenance fees.
4. Set up online banking. If this is your first time creating an account with a financial institution, you’ll need to set up your online account. Be sure to link your MMA to your checking account to enable overdraft protection. Downloading the bank or credit union’s app can help you manage your money on the go.

Key factors to consider when opening a money market account

Finding the right savings plan for your needs takes time and research. Here are some questions to consider as you research different money market accounts.

• What are your savings goals?

  If you want to set aside funds for a quick-access emergency fund or next summer’s vacation, opening a money market account makes sense. However, securing your funds in a three-year CD might be a better option if you have long-term goals, such as saving for a down payment on a house.

• What’s the best APY?

  Locking in a high APY means your money will earn more in the long run. Keep in mind that some of the highest APYs are reserved for customers who can make substantial deposits. For example, you may be able to earn an APY of over 5.00% if you deposit at least $25,000.

• Can you meet minimum balance requirements?

  Your bank or credit union may charge a maintenance fee if your balance falls below a minimum threshold, with requirements typically ranging from $25 to $250,000.

• Do you want a debit card or check-writing privileges?

  Opening an MMA that offers a debit card or checks allows you to use your money for everyday expenses, such as shopping, paying bills or sending monetary gifts to family and friends. While some may want this perk, others may prefer to skip it to keep their funds on “lockdown” and reach their savings goals faster.

• How often do you need to access your cash?

  Some financial institutions limit how many withdrawals you can make from your money market account, usually around six per statement period — although some banks allow up to 10 or even unlimited transactions. If you exceed the allocated transactions, you may be charged a penalty or maintenance fee. In some cases, your funds may automatically be transferred to a standard checking account if you fail to follow the transaction limitations.

• Is your money safe?

  Be wary of signing up for any type of savings account through an unknown online bank. Read the fine print to ensure the financial institution has federal deposit insurance or NCUA insurance, which covers deposits up to $250,000.

Pros and cons of a money market account

What’s the difference between a money market account and a savings account?

A money market account and savings account have some similarities, such as allowing you to earn interest on your deposits and linking to your primary checking account for overdraft protection.

One significant difference can be seen in each account type’s APY. With money market accounts, current rates go as high as 4.00% to 5.00%. In comparison, standard savings accounts have APYs of around 0.01% to 0.04%, although high-yield savings accounts are more comparable to MMAs.

Another notable difference between a money market versus savings account is the flexibility of use. With MMAs, you can use a debit card or checks to pay bills. However, traditional savings accounts don’t offer the same level of convenience.

Since a standard savings account typically has lower deposit and balance requirements, it could be the better choice if you're just starting to build your savings. However, if you already have robust savings, transferring money to a high-rate money market account could help fast-track your earnings.

What’s the difference between a money market account and a money market fund?

Although the two names sound similar, a money market account is a type of deposit account (or savings account), while a money market fund is an investment account.

A money market fund, also called a money market mutual fund, invests in low-risk, short-term securities such as municipal, government and corporate bonds. You can open a money market mutual fund through a brokerage or investment firm, not a bank or credit union.

Even if the brokerage firm is attached to a traditional bank or credit union, money market mutual funds follow different regulations than traditional bank accounts. For example, FDIC and NCUA insurance don’t apply to mutual funds. Instead, the Securities Investor Protection Corp. (SIPC) protects up to $500,000 of securities and cash if the firm goes under.

While money market funds have the potential to earn more than other types of savings accounts, they have lost money in rare cases. Additional regulations enacted since 2016 have made money market funds safer than ever. Still, if you want more stability, an MMA might be the better choice for you.