What Is a Money Market Account?

A money market account combines the features of savings and checking accounts. Banks and credit unions offer this interest-earning deposit account and may pay higher interest rates than other types of savings accounts, but they limit your monthly transactions. Here’s more about how money market accounts work, along with their advantages and disadvantages.

What is a money market account? (MMA)

A money market account typically earns higher interest rates than a traditional savings account and provides easy access to your cash. Top interest rates for MMAs can be comparable to those of high-yield savings accounts.

Money market accounts often come with debit cards and check-writing capabilities. Some may offer online bill payments or allow you to withdraw cash with an ATM card.

Limits may apply to certain transactions, such as the number of checks you can write monthly. You may also have caps on monthly debit card transactions and electronic transfers.

How do money market accounts work?

Money market accounts often function like traditional savings accounts. However, they typically require higher opening and minimum balances than traditional savings accounts, usually about $2,500.

MMA rates are often tiered, which means your interest rate increases as your balance increases. You can deposit funds into a money market account whenever you wish and make withdrawals within its limits without paying a penalty.

Some key features of MMAs include:

• Debit card for easy access to funds. When you open your account, most banks give you a free debit card, allowing you to make deposits and withdrawals. Some may limit your monthly ATM withdrawals, while others offer unlimited ATM access. Make sure you check the terms of your account agreement.
• Check-writing privileges. You can typically write checks but may have a monthly limit on how many.
• Interest earnings. The top rates can be in line with high-yield savings accounts. Interest rates are variable, which means they fluctuate based on market conditions.

As with savings and checking accounts, MMAs at banks and credit unions are backed by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). You’ll automatically get this protection for deposit accounts at member institutions. Deposits are insured up to at least $250,000 per depositor, per insured bank, per ownership category.

Pros and cons of money market accounts

Pros of MMAs

Higher interest rates than some deposit accounts: Money market accounts tend to earn more interest than traditional savings accounts and checking accounts. If you shop around, interest can be more in line with a high-yield savings account.

Debit cards and check-writing capabilities: Debit or ATM cards and checks allow you to make transactions similar to those with a checking account.

Insured deposits: MMAs typically come with federal insurance. If your financial institution fails, your money is protected by the FDIC or NCUA. This insurance covers your balance, up to the insurance limit, including principal and interest through the date of the insured bank’s failure.

Cons of MMAs

Limited withdrawals: Some banks or credit unions limit the number of monthly transactions you can make in your money market account.

Higher initial deposit and minimum balance requirements: MMAs may require a higher initial deposit than standard savings and checking accounts. You may also be required to maintain a high minimum balance, and failure to do so could lead to fees.

Fees can reduce returns: You could face fees if you exceed withdrawal limits or fail to maintain your minimum balance. Depending on where you open your account, other fees could apply, including overdraft fees, nonsufficient funds (NSF) fees, monthly maintenance fees and more.

MMAs vs. other deposit accounts

If you’re trying to choose between a money market account, a savings account or a certificate of deposit (CD), this table can help you compare and contrast the three products. Consider rates and features to make an informed decision.

FDIC rates as of Oct. 21, 2024

Tips on selecting an MMA

If you’re trying to choose a money market account, you’ll want to shop around. Compare accounts from different banks and credit unions, looking at:

• Eligibility requirements: Before you open an account, check to see if you’re eligible. Also, can you open an account online, or do you have to visit a branch in person?
• Interest rates: The higher the interest rate, the faster your savings can grow.
• Minimum deposits and balances: See what you’re on the hook for regarding an opening deposit and whether a minimum balance is required. Some banks have specific requirements for you to earn a set interest rate.
• Fees: Ask what can be waived and what you have to pay, such as ATM and NSF fees, charges for excessive withdrawals, and others.
• Other savings options: Compare MMAs with high-yield savings accounts and CDs to see which account offers the highest yield with the fewest fees and requirements.

When to choose a money market account

Sometimes, choosing a money market account over other types of accounts makes sense. A money market account might be a good idea if:

• You can get an interest rate comparable to a high-yield savings account.
• You want easy access to your money with a debit card.
• You can meet any minimum balance requirement and don’t mind fees.

You may want to look into alternatives if:

• You don’t need ready access to your money and don’t mind keeping it in other accounts.
• You don’t like the account’s transaction limits.
• You can’t handle the fees and account requirements.