A money market account is a special kind of savings account that’s offered by both banks and credit unions. There are plenty of advantages to these accounts: they are insured by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA), can earn interest at a solid rate and often come with a debit card or checks. However, there are also drawbacks, including account fees and a monthly transaction limit. Still, money market accounts can be a great option for those looking to grow their savings while maintaining immediate access to their money.
What is a money market account used for?
If you’re exploring new options for saving your money, you might be asking yourself: What is a money market account (MMA) exactly? These accounts, which are also known as money market deposit accounts (MMDAs) and money market savings accounts (MMSAs), operate very similarly to traditional savings accounts, albeit with a few notable differences.
A money market account is ideal for those who have somewhere between $500 and a few thousand dollars they want to save and slowly grow — while still maintaining access to their funds. For those who want a greater return on investment, there are also jumbo money market accounts, which usually yield a higher interest rate and require a larger minimum deposit — sometimes as much as $100,000. Additionally, there are business money market accounts that provide a safe place where companies can gain interest on their money.
How does a money market account work?
Money market rates
Money market rates are typically higher than those found in a traditional savings account. For example, the FDIC posted the national average savings account yield of 0.06%, while the national average money market account yields were 0.08% for balances of $10,000 or more and 0.15% for balances of $100,000 or more.
However, it’s important to keep in mind that money market rates are variable, meaning they can change at any time at the discretion of the bank or credit union.
Money market account minimum balance
A money market account’s minimum balance can range from $100 or less to several thousand dollars. That said, some banks, like Ally and Capital One, feature accounts that you can open without a minimum balance.
Many banks and credit unions also offer rate tiers, in which maintaining a higher balance will earn you a more favorable APY. Ultimately, it’s best to compare money market accounts before choosing one so you can find the best interest rate to match your ideal minimum balance.
Money market account fees
Some common costs associated with money market accounts include overdraft fees, outgoing wire fees and “stop payment” fees, which occur when an in-progress payment or money transfer is canceled. Fees will ultimately differ between financial institutions and account types, though, so it’s best to read the fine print when comparing options.
Additionally, many banks and credit unions will charge you a small fee for exceeding your allotted number of monthly transactions.
Money market account transaction limits
Under federal law, you cannot withdraw money or make payments from a money market account more than six times a month. That rule, known as Regulation D, applies to transactions by check, debit card, draft or electronic transfer (see note).
However, ATM withdrawals and transactions by mail, messenger, telephone check or in person are not subject to the six-transaction limit. Additionally, some money market accounts provide a debit card, and some also offer check-writing privileges, allowing for greater access to your money.
Are money market accounts FDIC insured?
So, are money market accounts safe? Just like a savings account, a money market account obtained at a bank will be insured by the FDIC, while one opened through a credit union will be insured through the NCUA.
That means a money market account’s risk is relatively low, as your money is still covered if your bank or credit union goes under. The FDIC and NCUA both cover at least $250,000 per person, per insured institution, so it’s important to make sure your financial institution is a member.
Money market account pros and cons
- Competitive interest rates: One of the biggest benefits of a money market account is the potential to earn a higher APY than you would with a traditional savings account. These interest rates are often even higher with premium money market accounts, which reward you for maintaining a higher minimum balance.
- Easy access to money: Liquidity is another one of the major advantages of a money market account. You can access your money through a variety of forms — check, wire transfer, ATM or in person — the moment you need it. Some banks even offer a debit card, which is linked directly to your account.
- Accounts are insured: Since money market accounts are insured by either the FDIC or NCUA up to the legal limit — depending on if they’re at a bank or credit union — you can feel secure about keeping your money in a safe, low-risk place.
- Minimum balance requirements: You’ll typically have to maintain a minimum balance in order to avoid paying a fee. Some money market accounts don’t require minimum balances, but many banks and credit unions reserve premium features for customers who can maintain a certain account balance.
- Limited monthly withdrawals: Federal law restricts money market accounts to a maximum of six transactions each month. But again, this rule does not apply to withdrawals by ATM, mail, in person, messenger and telephone check (see note).
- Potentially changing rates: Although APYs are typically higher than with a savings account, they’re still liable to change as the market does. The market’s interest rates obviously have the ability to rise or fall, and that uncertainty might not be for everyone.
- Low upside for growth: The interest rates for a money market account may be higher than most savings accounts, but that growth is still relatively limited. Ultimately, you have the potential to earn more (with risk) elsewhere, such as with a mutual fund.
Money market accounts vs. other accounts
Money market account vs. money market fund
While they may sound similar, there are actually several differences between money market accounts and money market funds. Money market funds are not a type of savings account, but rather a fixed-income mutual fund that invests in short-term, low-volatility securities, such as treasury bills.
Money market funds are considered to be low-risk in comparison to other investment types, but unlike money market accounts, they are not FDIC insured. That means there’s technically a chance you could lose your money if your account provider goes under.
Money market account vs. checking account
Money market accounts are similar to checking accounts in many ways, such as the fact that both provide access to your funds via checks, ATMs, wire transfers and other convenient methods. Checking accounts, however, are not bound to a transaction limit by Regulation D, meaning there is no limit on the number of times you can withdraw from them in a month (see note).
That’s a major difference from money market accounts, which are limited to six transactions per month — excluding those done by ATM, mail, messenger, in person or telephone check.
Money market account vs. savings account
There are several commonalities between savings accounts and money market accounts. For example, savings accounts are also limited to six transactions per month. Additionally, savings accounts and money market accounts are both FDIC insured, and both are able to collect interest, although savings accounts usually do so at a lower rate.
The biggest difference between the two comes down to accessibility. Unlike money market accounts, savings accounts typically don’t generally come with a debit card and often have no check-writing capabilities.
Money market account vs. CD
A CD, or certificate of deposit, is a type of savings account in which a bank holds a fixed amount of money for a fixed period of time. When the period is over, the bank pays you back your initial investment, plus interest. Just like money market accounts, CDs obtained through an FDIC-insured bank are covered up to $250,000.
Money market accounts allow you to withdraw money when you need it, but CDs will penalize you for removing funds before the end of the maturity period. Another difference: CDs come with a fixed interest rate, while the rates on money market accounts are variable and thus subject to change.
How to open a money market account
So, you’ve weighed your options and decided you want to open a money market account. First, you want to think about how much money you plan on keeping in your account, as minimum balance requirements will affect your options.
Then, you should compare credit unions and banks with money market accounts, analyzing fees and requirements to see which financial institution best fits your needs. Our updated list of the best money market accounts currently available is a solid place to start.
Finally, it’s time to contact a bank or credit union and open an account. You can almost always do that in person at brick-and-mortar financial institutions, but many will also let you apply online or by mail.
Note: On April 24, 2020, the Federal Reserve amended Regulation D to delete the six-per-month limit on convenient transfers from "savings deposits." This change to Regulation D does not require banks and credit unions to eliminate their six-per-month limit, and thus many have chosen to maintain the six-per-month limit.