A money market account lands somewhere between a savings and a checking account, allowing convenient access to your deposits like a checking account while earning more interest than a traditional savings account. And unlike most savings accounts, MMAs generally offer check-writing privileges and debit card access.
The best MMAs offer annual percentage yields, or APYs, over 4%, based on the banks we track at CNET. Money market rates aren’t as lucrative as some high-yield savings accounts, but the tradeoff is a unique mix of checking and savings features. Here’s everything you need to know about how a flexible MMA might benefit your financial plan.
What is a money market account?
A money market account is a type of savings account that combines the interest-earning benefits of a savings account with the accessibility of a checking account.
MMAs were created in the 1980s to attract smaller investors and circumvent large investment requirements to access higher rates available for Treasury bills. In those days, the minimum investment requirement started at $100,000 -- leaving most small investors on the sidelines.
Fast forward to today. MMAs are well-known financial products offered by most banks and credit unions. They earn variable interest, the market rate -- hence the name “money market.”
How a money market account works
The interest earned on an MMA is variable, meaning it fluctuates in reaction to market conditions. As the Federal Reserve modifies the benchmark federal funds rate, banks raise or lower interest offered on deposit products. Additionally, a money market account can also offer a tiered rate -- the higher your account balance, the higher your interest rate.
Many MMAs offer debit card access and check-writing privileges like standard checking accounts. However, there’s normally a limit on the number of withdrawals you’re allowed monthly. Under the excessive transaction rule, known as Regulation D, savings accounts were restricted to six withdrawals a month, excluding ATM withdrawals. In 2020, Regulation D was suspended in response to the COVID-19 pandemic, though some banks continue to charge fees if you exceed six withdrawals a month.
MMAs generally offer higher interest rates than traditional savings accounts, but you might need to meet a higher initial deposit or maintain a certain minimum balance. Some banks charge monthly maintenance fees, but some may waive this fee if you maintain a minimum balance. It’s worth reviewing a bank’s requirements before deciding if its MMA is right for you.
Pros and cons of a money market account
Pros
FDIC- or NCUA-insured: A money market account is considered a low-risk investment because it is insured up to $250,000 per person, per account category, by the Federal Deposit Insurance Corporation or the National Credit Union Administration.
Easy access: Most banks provide debit card access and check-writing privileges, making MMAs liquid and easily accessible.
More flexibility: Unlike CDs, you can deposit additional money at any time.
Competitive rates: Higher balances earn higher interest rates for accounts that operate on a tiered model.
Several MMA options: Most banks and credit unions offer MMAs through digital banking services so accounts and benefits can be compared nationwide to locate the best deals.
Cons
Withdrawal restrictions: Some banks may limit the number of transfers and withdrawals you can make each month. Surpassing that limit will incur an excessive transaction fee.
Minimum balance requirements: MMAs typically have higher initial deposit requirements than savings accounts, incurring added fees for dipping below the minimum.
Less predictable returns: Interest rates are generally variable, making your return less predictable. Rates can go up or down at any time, meaning you’re at risk of a lower return if rates drop.
Subject to federal and state taxes: Interest earnings are taxable income, though this is true for any deposit account.
Lower yields than other long-term bank products: While MMAs earn higher interest than traditional savings accounts, you can earn higher returns on long-term savings with CDs or other investment accounts.
How to open a money market account
You can easily open a money market account online at traditional or online banks, or apply in person at brick-and-mortar locations. Compare rates, restrictions and benefits at multiple financial institutions to ensure you’re selecting the account with the best benefits.
After you find the MMA that’s best for you, here’s what to do:
1. Submit an application online or at a physical bank: Most banks require personal information, such as your name, phone number, date of birth, Social Security number, address, income and employment status.
2. Complete verification requirements: You may have to verify your identity by submitting an identification card or proof of address.
3. Fund your money market account: If you aren’t prompted to deposit funds during the application process, you can deposit funds to meet minimum funding requirements once your account is open.
How does a money market account differ from a savings account or a certificate of deposit?
A money market account differs from a traditional savings account in two key ways:
- A money market account usually offers debit card access and check-writing privileges, while most savings accounts do not.
- A money market account generally limits the number of times money can be transferred or withdrawn per month and requires a minimum balance to avoid monthly service fees. Some savings accounts may have one or both of these requirements, but many do not.
There are also several differences between a money market account and a certificate of deposit, or CD.
- CDs tie your money up for a period of time. CD terms typically range from three months to five years (though shorter and longer terms than this exist). That means you can’t withdraw funds as needed like you can with an MMA.
- If you do withdraw funds from a CD before the term is up, you’ll pay early withdrawal penalty fees, and may miss out on a few months’ worth of interest.
- Traditional CDs don’t allow you to add more to the account after it’s opened. This means if you want to invest more funds in a CD, you’ll need to open a new account or park your money elsewhere. A money market account, however, lets you deposit money at any time.
What’s the difference between a money market account and a money market fund?
A money market fund is a mutual fund that invests in short-term debt like government bonds, cash and cash equivalents. Investors purchase shares and earn returns in the form of capital gains. Money market funds are considered low-risk investments, but they aren’t insured by the FDIC like MMAs are.
| Money market account | Money market fund | |
| How to open | At a bank or credit union | Sold by brokerages and investment firms |
| Type of account | Deposit | Investment |
| Interest rate | Variable interest rate | Variable interest rate |
| Minimum deposit | Some banks and credit unions have minimum deposit requirements | MMFs typically have low minimum purchase requirements |
| Risk | MMAs at FDIC-insured banks and NCUA-insured credit unions are insured for up to $250,000, per person, per account | Money invested in MMFs aren’t insured by the FDIC or NCUA, but the Securities Investor Protection Corporation, or SIPC, protects cash and securities in your brokerage account for up to $500,000 (if your firm is a SIPC member) |
| Access | Some accounts offer debit card and check-writing privileges | Generally no debit card or check-writing privileges. |
| Liquidity | Some banks and credit unions limit monthly withdrawals | Unlimited withdrawals |
| Fees | Some banks and credit unions charge monthly maintenance fees and excessive transaction fees | Management fees in the form of an MMFs expense ratio |
Is a money market account worth it right now?
Money market accounts aren’t much different from high-yield savings accounts, though they offer more flexibility than traditional savings and CDs (which have comparable rates today). Many of the best money market accounts offer competitive APYs well above the FDIC’s national average, which is currently 0.63%. The best MMAs offer APYs over 4%, based on the banks we track at CNET.
If you’re considering a money market account, compare offers from different banks to find one with a minimum deposit, fee structure and interest rate that works best with your financial goals.
But remember, the specific savings vehicle you choose isn’t as important as the act of saving itself.
“Your plan should dictate what products you need,” said Bonneau. “No product is the perfect product; it’s all relative to what problem it’s solving for you.”
If you’re starting to build your savings, choose a suitable account to help you meet your savings goals, then work on developing a habit of saving regularly. This can help you secure a more stable financial future, even when hardship hits.
How to choose the best money market account
When opening an MMA, there are several features to compare before deciding which is best.
- What are the minimum deposit requirements? This will help you decide if an account will work with your savings budget. Note any minimum balances required to avoid service fees. Such service fees will cut into earnings growth and should be avoided when possible.
- What interest rate does the account earn? It’s important to research accounts nationwide to find the best rates available. With the prevalence of online banking, geography isn’t an impediment to finding the highest interest rates.
- Make note of all fees associated with the account. It’s important to understand all fees and any restrictions that can result in penalties to ensure your account growth is not compromised.
The bottom line
Money market accounts are best for savers looking for safe, low-risk savings options that have enough money to satisfy the higher initial deposit requirement. These accounts are best for short-term savings and people who won’t need to make numerous monthly withdrawals. But make sure to compare rates and weigh your options based on your savings goals before you jump in.
This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.
