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What is a money market account?

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Money market accounts are deposit accounts that share features of savings and checking accounts. They’re interest-bearing like a savings account — your balance earns interest — but they also frequently offer check-writing capabilities and debit card access like a checking account.

Besides having components of savings and checking accounts, money market accounts also have distinct features that set them apart. Here’s what to know if you’re interested in opening one.

What is a money market account?

As mentioned, money market accounts are similar to both savings and checking accounts. And like other deposit accounts, money market accounts are often insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Both national institutions provide up to $250,000 in deposit insurance on consumer bank account balances. This insurance protects your account balance if your bank or credit union defaults.

A common misconception is that money market accounts are the same as money market funds. While their names sound similar, the two work very differently. Unlike money market accounts, which carry deposit insurance, money market funds are not deposit accounts or insured by the FDIC or NCUA.

Instead, money market funds are a type of mutual fund you can invest in through a brokerage. These funds can gain or lose money regularly based on stock market performance. Your money market account balance isn’t tied to market performance, so it won't lose money due to movement in the market.

How do money market accounts work?

While money market accounts have characteristics of savings and checking accounts, they often come with relatively high minimum balance requirements. For instance, you may need to maintain a $3,000 minimum balance with a money market account to avoid monthly fees. This generally isn’t the case with checking or savings accounts.

In addition to minimum balance requirements, money market accounts may have tiered annual percentage yield (APY) structures that set them apart from other deposit accounts. Higher APYs may be reserved for account holders with larger balances, while smaller balances may earn less interest. For instance, a bank might offer a 0.10% APY on balances up to $5,000, a 0.50% APY on $5,001 to $10,000, and so on. Rates on money market accounts are typically variable, meaning they’ll likely change over time.

As with other accounts, money market accounts may be subject to fees and limitations. Watch out for minimum balance fees, monthly maintenance fees, and more. And pay attention to withdrawal limits. While the Federal Reserve eased withdrawal limits in 2020, some banks still impose them. It’s common for banks to charge fees for exceeding six withdrawals in a month.

Pros of money market accounts

  • Relatively high APYs

  • Flexibility

  • FDIC insurance

Cons of money market accounts

  • May have high minimum balance requirements

  • May have a tiered APY structure

  • Fees and withdrawal limits may apply

Money market accounts vs. other savings options

Savings accounts

Traditional savings accounts are widely available at banks and credit unions, and these accounts tend to offer nominal APYs and flexible access to your money. Your rate with a traditional savings account may be slightly lower than that of a money market account.

While your balance will be easily accessible with both account types, money market accounts typically offer debit card access and check-writing capabilities, similar to what you’d get with a checking account. These features aren’t always available with savings accounts.

Certificates of deposit (CDs)

When you deposit your money into a CD, you essentially promise your bank you’ll deposit it for a fixed term, such as one or three years. In exchange, you’ll benefit from a high APY, which varies by bank. CD rates may be higher than money market account rates depending on your financial institution.

Because CDs come with set terms, you’ll typically have to pay penalties if you withdraw your money early – often a few months’ interest on the withdrawn amount. With a money market account, you typically won’t be required to leave your money deposited for a set time. Instead, you can withdraw it as you please up to your bank's limits.

High-yield savings accounts

With a high-yield savings account, your APY may be higher than what a money market account offers. For instance, you might get a 3.00% APY no matter your balance in a high-yield savings account and a 0.10% APY for money market account balances below $5,000. Both types of accounts typically offer easy access to your balance, allowing you to deposit and withdraw funds as you please.

While check-writing and debit cards are common with money market accounts, high-yield savings accounts might not offer these features. But depending on the bank, some high-yield savings accounts may come with debit cards.

Money market funds

While a money market account is an insured deposit account, a money market fund or money market mutual fund is an investment that the FDIC or NCUA doesn't insure. Unlike money market accounts, where your balance won’t decrease due to market conditions, money market funds can gain or lose money depending on the market.

In general, though, money market funds are considered fairly low-risk investments. That’s because the underlying fund invests in low-risk, short-term debt securities. Because money market funds are relatively low-risk, their historical returns aren’t as high as other higher-risk investments.

Choosing a money market account

As with any account, it’s essential to compare options if you’re interested in a new money market account. Researching the following factors can help you find an account that best meets your needs:

  • APY: In general, a high APY can mean you earn more interest on your account balance. Compare rates as you shop around for a new money market account.

  • Minimum balance: Certain accounts may have minimum balance requirements. Pay attention to any initial deposit or minimum balance requirements to ensure a new account is right for your financial situation.

  • Account features: While many money market accounts offer check-writing privileges and debit card access, comparing different account features is still important. Look at potential restrictions on withdrawals. For instance, does the bank limit how much you can withdraw or how often you can take money out in a month?

  • Fees: Some banks may charge you fees if your money market account balance drops below a specific amount. Other fees may apply as well. Keep in mind that if a money market account offers a high APY and high fees, it may not be the best choice. Calculate how fees may impact your balance in addition to interest before opening a new account.

Managing a money market account

As with other types of savings accounts, you’ll likely be able to track money market account transactions and review your balance online. Some banks may also offer a mobile app that allows you to access your account at any time. Others may have physical branches you can visit.

Overall, a money market account may be a smart option for short- or medium-term savings goals. For instance, if you want to build an emergency fund or save for a car down payment, opening a money market account could work in your favor. These accounts aren't great for long-term savings goals, such as setting aside cash for retirement, as investment accounts may offer better returns.

Find the best Money Market Account rates!
Find the best Money Market Account rates!