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What is a money market account?
A money market account (MMA) is a savings account that may also have debit card and check-writing privileges. The accounts typically limit the number of purchases and transfers to six each month. ATM withdrawals usually are not capped.
Traditionally, money market accounts often offered higher interest rates compared with regular savings accounts. But these days, rates are similar. However, many MMAs have higher minimum deposit or balance requirements than regular savings accounts.
Deposits are insured by the Federal Deposit Insurance Corp. at banks and the National Credit Union Administration at credit unions. Your money is protected, up to $250,000 per depositor, if the financial institution goes out of business.
» Want to compare rates? See our list of the best money market accounts
What are the pros and cons of money market accounts?
Is a money market account worth it? That depends. If you’re considering one, keep these pros and cons in mind.
Pros
Better rates than typical checking accounts and some savings accounts.
Safe place to keep a large chunk of money, protected by FDIC or NCUA insurance.
Easier access to funds than with traditional savings accounts because of debit card and check features, which might be helpful in an emergency.
Cons
Some institutions require high minimum balances to open an account or avoid fees.
Rates are lower compared with some high-yield savings accounts.
Access to money with checks and debit cards could encourage impulse spending, which might make it harder to save.
When to choose a money market account over a savings account
If your bank pays better or the same rate on its standard savings account as a money market account, and your goal is to park your funds and watch your bank balance grow, it might be worth sticking with the savings account. But if the money market’s rate is higher than the savings account, or you need to make an occasional purchase from the account, and you can meet any minimum balance requirement, it could be a good idea to open a money market account.
» Learn more about money market accounts compared to savings accounts
Compare money market accounts
Quontic Money Market Account
Discover® Money Market Account
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How to choose a money market account
Look for a money market account with a high interest rate and no monthly fee. The account should also have a low minimum balance — less than $1,000 is often attainable. Some institutions require $10,000 or more to earn the best rates or avoid a fee, while others have no minimum.
» Want to compare money market accounts in your area? See these money market options by region
Money market accounts vs. other accounts
Money market accounts have features that overlap with those of other bank accounts, but there are important differences. Consider how they compare with other savings accounts:
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| Interest rate: Competitive with savings accounts. May pay a better interest rate than a regular savings account. Typically offers the ability to write checks or make debit card purchases (may be limited to six times a month).
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| Interest rate: Competitive with money market accounts, but often lower than top CD rates. Usually has a lower minimum opening deposit and lower balance requirement than a money market account. High-yield savings accounts earn more than some money market accounts. Read more about high-interest savings accounts.
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Certificates of deposit (CDs) | Interest rate: Generally highest of all bank accounts, but money is inaccessible for fixed time periods. Earn interest on a chunk of money you won’t need for months or years. Get higher interest rates without the risk of investing in the equity markets. (Learn more about how timing and risk tolerance helps you determine where to put your money, and find the accounts with the best CD rates this month.)
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Money market accounts also have crucial differences from other types of bank accounts:
Money market fund: A money market account is not the same thing as a money market fund, which is an investment that could lose value if the market falls. Unlike money market funds, money market accounts are federally insured by the FDIC or NCUA.
Checking account: A money market account isn’t a checking account. MMAs may have check-writing and debit card features, but, as with regular savings accounts, they can be limited to six “convenient” transfers or withdrawals a month. That includes transactions by check, debit card swipe or online transfer. If you want to earn yields while also having the ability to write checks and make frequent withdrawals, you may be better off opening a checking account that earns interest. You can look for interest-bearing options in NerdWallet's list of best checking accounts.
» Want to learn more about investing in the stock market? Check out our guide for beginners.
FAQs
Money market accounts are a kind of savings account that typically offer debit cards or checks. But some regular savings accounts have higher APYs. Margarette Burnette is a NerdWallet authority on savings, who has been writing about bank accounts since before the Great Recession.
What is a money market account? ›
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.
What is a money market account quizlet? ›
A money market account is an interest-bearing savings account that offers a higher-yield interest rate, allowing you to earn faster than a traditional savings account.
How much will $10,000 make in a money market account? ›
How much a $10,000 deposit in a money market account will earn annually depends on the annual percentage yield (APY) offered by your financial institution. If you deposit $10,000 into a money market account with a 5.00% APY, you will earn $513 in interest by the end of the year, assuming daily compounding.
What is the downside to a money market account? ›
Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
Are money market accounts worth it? ›
Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.
What is meant by money market? ›
The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less.
How much will $50,000 make in a money market account? ›
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.
Is it hard to get money out of a money market account? ›
Access to your money is also typically a bit easier with an MMA since they often allow you to write checks and withdraw from ATMs. (But remember, this easy access could tempt you to spend more than you would with a savings account).
How much cash should you keep in money market account? ›
Some money market accounts require minimum account balances for 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 as emergency funds. Beyond that, not investing will mean missing potential earnings.
Since money market accounts are insured by the FDIC or the NCUA, you cannot lose the money you contribute to the account—even in the event of a bank failure. You can, however, be subject to fees and penalties that reduce your earnings.
What is better than a money market account? ›
However, high-yield savings accounts sometimes beat out money market accounts when it comes to APY, so it's important to compare rates before opting for one account over the other. Opening a savings account with a high APY, whether it's a high-yield savings account or a money market account, is a no-brainer.
Do you pay taxes on money market accounts? ›
Taxable money market funds, also known as prime money market funds, usually offer higher yields than tax-exempt funds, but any income is subject to taxes. Prime funds invest in corporate and bank debt issued by U.S. and international entities.
Can you withdraw money from a money market account? ›
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.
Does money grow in a money market account? ›
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.
What is the difference between money market and savings account? ›
Money market accounts offer flexibility with check-writing and debit cards, savings accounts are more accessible and have lower fees, and CDs offer higher interest rates but with a commitment to keep your money locked away for a set period of time. To make the best choice, consider your financial goals and situation.
