What is a money market account? | Consumer Financial Protection Bureau (2024)

FAQs

What is a money market account? | Consumer Financial Protection Bureau? ›

A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.

Money market accounts offered by banks are federally insured through the Federal Deposit Insurance Corp., up to at least $250,000 in the event of a bank failure. Failures are rare. However, the bank collapses of 2023 serve as a reminder of the importance of FDIC insurance to protect your funds.

How Do Money Market Accounts Work? Money market accounts work like other deposit accounts, such as savings accounts. As customers deposit funds in a money market account, they earn interest on those funds. Typically, interest on money market accounts is compounded daily and paid monthly.

Disadvantages of money market accounts

For example, you often won't earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer.

Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs). CDs are offered by financial institutions for set periods of time.

You can withdraw money from your money market account whenever you'd like. However, your bank may place limits on how many withdrawals you can make in a single statement period. Additional withdrawals typically incur a fee.

There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.

It might be worth investing in a money market account when you want a safe place to store your money with a higher interest rate than a checking account, while still having some liquidity features such as check writing. It's ideal for emergency funds or short-term savings goals.

Because you earn higher interest rates than with a traditional savings account, a money market account can be a great choice to set aside some emergency cash or start building your savings. And unlike a traditional savings account, you have more options for withdrawing your money when you want it.

Some people choose money market accounts over savings accounts because they offer higher interest rates. While the difference in earned interest can be small, it might be enough to offset possible liquidity constraints posed by money market accounts, if you're are unlikely to need quick access to your cash.

Who typically uses a money market account? ›

For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.

First and foremost, money market accounts are typically safe because they're insured by the federal government. If you open a money market account at a federally insured bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your cash per bank, per depositor.

Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.

Which Bank Gives 7% Interest Rate? Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.

Money Market Account

Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.

To determine your deposit insurance coverage or ask any other specific deposit insurance questions, please visit the FDIC Information and Support Center or call 1-877-ASK-FDIC (1-877-275-3342).

It allows you to invest in short-term debt securities, including US treasury bills. So while it offers the liquidity and low risk of a money market account, a money market fund is an investment product, not a deposit product, and therefore can't receive FDIC coverage.

Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.

The FDIC adds together the balances in all Single Accounts owned by the same person at the same bank and insures the total up to $250,000.