What is a money market account?

Found at banks and credit unions, a money market account is a type of deposit account with features of both checking accounts and savings accounts. Money market accounts can pay high interest rates — up to 5.48% currently — and may require a minimum deposit to open and maintain.

But many also come with debit cards or check-writing privileges. These features help you tap your funds as necessary while you earn top rates.

Money market accounts may charge a monthly service fee, which you can often avoid if you meet minimum balance requirements or get e-statements. Additionally, these accounts may limit the number of monthly transactions you can make by check, debit card or electronic transfer. However, withdrawals or deposits made via an ATM, in person or by mail are usually not capped.

Unlike certificates of deposit (CDs), which pay more than even high-yield savings accounts, money market accounts don’t require you to leave funds untouched for a certain period to earn interest.

Note that you’ll generally need to be 18 to open a money market account on your own in the U.S. Like other deposit accounts, money market accounts are insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) up to $250,000 per account holder, per institution, per ownership category.

What is the difference between a money market account and a savings account?

You’ll find two main differences between money market and savings accounts. The primary difference is in how you access your money.

A money market account typically allows you to write checks and use ATMs and debit cards, just like a checking account. A savings account usually comes with access to ATMs, but you can’t write checks.

The second difference is the account interest rates. Money market accounts tend to offer higher rates than savings accounts. But high-yield savings accounts can sometimes beat money market account rates.

What is the difference between a money market account and a money market fund?

While money market accounts and money market funds share similar-sounding names, they are different financial tools. A money market account is a type of savings account, while a money market fund is a type of low-risk mutual fund.

You open a money market account at a bank or credit union and a money market fund at a brokerage or investment firm. On average, you’ll earn a higher interest rate with a money market fund.

A money market account is federally insured, as long as the institution is, but a money market fund is not backed by the U.S. government.

What is a good money market rate?

Money market accounts pay a wide range of interest rates, but the most competitive options available today top 5%. These rates may start to drop later this year as banks and credit unions anticipate that the Federal Reserve will cut its benchmark federal funds rate. This rate, which influences the interest payouts consumers receive from financial institutions, is at a 23-year high.

But so far the Fed has held steady, with its rate target unchanged since July 2023. This means the most generous banks and credit unions could keep rates high well into next year.

In fact, the national average rate on money market accounts has held fairly steady from 0.65% in January to 0.67% in June. The rate in June is much higher than the national average savings rate of 0.45%. Money market accounts tend to offer higher rates on average than savings accounts.

What are the key features of a money market account?

Money market accounts have distinct characteristics compared with other deposit accounts. Review the features of any money market account you’re considering to make sure you can avoid unnecessary fees, meet balance minimums and get the perks you want. Look at these key areas:

Interest rates. Rates on money market accounts usually beat rates on traditional savings accounts. But rates are variable and can fluctuate. You may also get different interest rates based on how much you’ve deposited, with the highest rates going to the largest balances.

Access to funds. Many money market accounts come with a debit or ATM card and allow you to write checks. However, your bank or credit union may cap the number of monthly transactions you can make by check, debit card or electronic transfer. You may also be charged excessive transaction fees if you exceed the allowed number of transactions.

Account requirements. Some banks and credit unions have minimum deposit requirements you’ll need to meet to open a money market account. Others require a minimum balance to avoid fees or account closure. You may encounter monthly maintenance fees but may be able to avoid them by opting out of paper statements or maintaining a specified balance.

Pros and cons of money market accounts

A money market account combines the earnings potential of a savings account with the spending flexibility of a checking account, but watch out for fees and account minimums.

How to choose a money market account

When choosing a money market account, look for those with a high interest rate — 5% or better at the moment. Compare the top money market rates against the top savings account rates to ensure you get the best deal.

Sometimes banks or credit unions offer better rates for savings accounts. Sometimes they pay the same rates on both account types, but the savings account comes without fees or minimum balance requirements. Review the opening balance requirements as well as any minimum balance requirements.

Fees will eat into any interest you earn, so try to avoid money market accounts that charge a monthly maintenance fee that cannot be waived easily.

Most money market accounts come with debit cards or check-writing privileges. If you want easier access to your funds than traditional savings accounts deliver, ensure that your chosen account offers this feature.

How to open a money market account

Once you’ve found the right money market account, the process of opening and funding the account is fairly simple. Many banks and credit unions allow you to complete it online or through an app, but you can also do it in person if you can access a branch. Here are the steps to open a money market account:

Gather your documents. To open an account, the bank or credit union will need your personal details, including your name, Social Security number, birthdate and address. Some may want to know about your employment status and income level. If you’re planning to transfer money into this new account from another account, have the account number and bank routing number on hand.

Apply for the account. Complete an application at a branch or on the bank’s website or app. With online or digital banks, you cannot complete the process in person, but you may be able to do so by phone. When establishing the account, you may be asked whether you want checks or a debit card to use with the account and whether you want to add a joint owner or beneficiary. If so, you’ll need to add this person’s information to the application as well.

Complete any verification requirements. The bank or credit union could ask you to upload or submit copies of documents proving your identity and the information you shared on the application. Banks may request to see your driver’s license, Social Security card, passport or other identification documents. Some want income-related documents to double-check your employment status or pay, while others need proof of address, such as utility bills or lease agreements.

Make your first deposit. You must make an initial deposit into your money market account during the application process or soon after its opening. Often you can do this by transferring funds from another account, wiring money, or depositing a check or cash into the account.

Alternatives to money market accounts

Money market accounts aren’t your only option for earning a strong return on your savings. Here are four others to consider:

High-yield savings accounts. This type of savings account pays a much higher interest rate than a traditional savings account, and rates may beat money market accounts. But high-yield savings accounts typically don’t offer debit card access or check-writing privileges and may include monthly transaction limits. You may need to maintain a minimum balance to earn the top rate, and some accounts may pay out different rates depending on the size of your balance.

CDs. These timed accounts earn a fixed interest rate for a fixed period, anywhere from one month to several years. CDs typically offer higher rates than money market accounts. The main downside is that you usually can’t cash out a CD without a penalty until it reaches maturity. You also can’t add more funds after you make the initial deposit.

Savings accounts. A traditional savings account pays much less interest than a money market account. The main advantage is that you can open an account often with little or no deposit.

Treasurys. Regarded as a low-risk investment, Treasury bonds and notes are a type of security sold by the federal government. Treasurys provide twice-yearly fixed-interest payouts until they reach their maturity date, which is 20 or 30 years for bonds and between two and 10 years for notes. Typically, long-term bonds pay the highest interest rates. As with a CD, your money is less liquid than with a traditional bank account.