Money market accounts can be great for people who want the higher interest rates of a savings account but also want the flexibility to write checks. Some banks require minimum balances to get the best rates, but many—especially online-only banks—don’t.

Here’s how money market accounts stack up against other savings options and what to look for when choosing one.

What is a money market account?

A money market account is an interest-bearing bank account. At the end of the day, it looks and functions very much like a savings account, but with a few distinct features of a checking account.

A money market account will usually have some combination of the following features:

• A higher interest rate than the checking account at the same bank
• FDIC Insurance
• Check-writing capabilities
• A debit or ATM card
• A minimum balance requirement
• A monthly withdrawal limit
• Monthly maintenance or service fees

Here’s how a money market account compares to other types of bank accounts.

Money market accounts vs. savings accounts

Money market accounts tend to be more accessible than savings accounts.  They often come with a debit or ATM card and a checkbook so you can pay others or make direct withdrawals yourself, instead of having to transfer money to a checking account first. But how frequently you can make withdrawals or transfers depends on the individual bank’s rules.

The Federal Reserve used to limit withdrawals and transfers from savings products, including money market accounts, to six per month. The Fed scrapped that rule during the pandemic and now let banks decide whether to limit withdrawals or not. It’s not uncommon for a bank to set a monthly limit and charge a fee for each additional withdrawal or transfer.

In terms of interest rates, money market accounts and so-called high-yield savings accounts pay about the same on your balance—which is to say, much more than a checking account. Online banks as of late October 2023 were offering top rates of 5% or more on money market and savings accounts, while typical checking accounts earned less than 1%, according to DepositAccounts.com data.

Money market accounts vs. checking accounts

Checking accounts are the most accessible place to keep your money, aside from that shoebox under your bed. Most people use a checking account for day-to-day finances like paying bills, writing checks or taking out cash. Because of the low interest rates usually associated with checking accounts, they are not the most efficient place to keep large balances over the long term.

Money market accounts, like savings accounts, are designed to keep your money safe—and even growing—for longer than a few weeks or months. As such, a bank will pay interest on your balance as a way of enticing you to park your money there.

This is a presumed ideal setup, using a savings or money market account in conjunction with a checking account to manage your cash flow and short-term savings needs.

Money market accounts vs. CDs

While still a savings product, certificates of deposits or CDs, have a distinct difference when it comes to accessibility. A CD may offer a higher interest rate than a savings or money market account, but earning that return depends on locking up your money for a fixed period. The longer you leave your money untouched, the higher your interest rate, generally.

Money market accounts, by contrast, let you deposit and withdraw your cash with relative frequency.

Money Market Accounts vs. Money Market Funds

Money market accounts are deposit accounts, while money market funds are investment products. Although a money market fund is as low risk as an investment can get, it’s still not as safe as a deposit account.

Money market accounts, savings accounts, checking accounts, and CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account holder, per ownership category, per bank. This insurance means you won’t lose your money if the bank goes under. It’s peace of mind without extra cost.

Money market mutual funds invest your cash in low-risk U.S. Treasury securities. These funds are commonly used to temporarily hold cash before making an investment. However, since they are actively managed, there’s a fee that eats into your returns.

Money Market Account Terms to Know

When shopping for a money market account, keep these important features in mind:

Annual Percentage Yield (APY)

This is the rate of return on your balance, including compounding, over a year. Banks compound interest daily or monthly, but APY changes several times a year, so the actual interest earned may differ from the advertised rate.

Deposit

Some banks allow cash deposits into your money market account via ATMs, while others only accept electronic transfers from other bank accounts.

Fees

Monthly maintenance or service fees are less common with online banking, but many traditional banks still charge them. You can often avoid these fees by maintaining a certain balance or opting out of paper statements.

Withdrawal Limit

Banks must disclose withdrawal limits, which is the number of times per statement period you can withdraw cash or transfer money from the account. By law, a bank can’t set a monthly withdrawal limit of fewer than six on savings or money market accounts.

Minimum Deposit Requirement

Some accounts require a certain amount of money to open. These minimums vary, so shop around to find one that meets your needs.

Minimum Balance Requirement

Banks may require a minimum balance to avoid fees or account closure. Some banks don’t have a minimum balance requirement but only pay interest once your account reaches a certain amount. These are called rate or balance tiers, where larger balances get a higher rate.

FDIC Insurance

Money market accounts are insured up to $250,000 per account holder, per ownership category, per bank. You can check your insurance status using the FDIC calculator. For example, you can have $250,000 in an individual money market account and $250,000 in a joint savings account at the same bank and be fully insured. The FDIC insures over 4,700 financial institutions, and you can use their tool to check a bank’s membership status.

Debit or ATM Card

Some money market accounts provide ATM cards for withdrawals. Some even offer debit cards for purchases. Check if there are any fees associated with these cards.

Check Writing

Some money market accounts allow check writing, like a checking account. Keep in mind that a cashed check may count towards your monthly withdrawal limit.

How to Use Money Market Accounts in Your Portfolio

Whether you’re building an emergency fund, saving for a big purchase, or just wanting to earn some interest on your cash without risking it in the stock market, a money market account is a reliable tool.

Some banks only offer money market accounts or savings accounts, not both. If you’re unsure which to choose and don’t need to check writing or a debit card, compare a few trusted banks or credit unions to see what they offer.

There’s no magic number involved—it’s all about timing

So, you’ve got some extra cash on hand. Now you need to decide whether to save it or invest it. Surprisingly, this decision isn’t about how much money you have. Nowadays, with apps offering no transaction fees and low ongoing costs, you don’t need a large sum to start investing.

The key factor is time, not money. Here’s the simple rule: if you need the money within the next three years, save it in a high-yield savings account or a CD. If your goal is more long-term, or you don’t have a specific need for the money, consider investing in something that can grow, like stocks or bonds.

Time matters because it relates to risk. Money in a savings account is safe—you keep your balance, earn interest, and your funds are FDIC insured if the bank fails. Plus, you can access your money anytime without worrying about losses.

Right now, interest rates on high-yield savings accounts, especially from online banks, are pretty good—around 5 to 6% at some places. (These rates will eventually drop, but high-yield accounts will almost always be better than traditional ones.) CDs and money market accounts also have high rates right now, even beating inflation.

Investing could earn you more, but there are no guarantees. For example, the S&P 500 had over 20% returns in 2023 but lost 19% in 2022.

So, how do you choose the best option for your money and goals? There are tons of accounts and financial products out there. We’ve researched options from financial experts on each one and when they’re best to use. Read on to find out more.

Save Money You Need This Month

Your strategy: Saving
The tool you need: Checking account

Option: Put money for your day-to-day spending and bill payments here. This should cover your monthly spending, but not much more. However, avoid cutting it too close to avoid overdraft fees. Even though many banks have reduced these fees, penalties can still occur. Track your budget with a DIY method or a budgeting app and aim to keep at least 25% more than your monthly needs in your account to cover your checks.

Save for Emergencies and Unexpected Costs

Your strategy: Saving
The tool you need: High-yield savings account

Option: Use a savings account for your emergency fund and unexpected costs. These accounts should be liquid so you can easily cover deductibles, unexpected repairs, market downturns, or avoid debt.

Most financial experts suggest having at least three to six months of expenses saved for emergencies, like job loss. To be extra cautious, aim for 12 months given the current economic climate. If your income is unpredictable or you’re nearing retirement, you might want to save even more. Early retirees often keep up to two years of cash handy to avoid market risks. I learned this firsthand, and it really helped.

If retirement is far off, keep a minimum in your savings and invest the rest for long-term growth. Automating your savings is a smart move. Set up part of your paycheck to go directly into a savings account or arrange automatic transfers from your checking account. Money you don’t see is money you don’t spend. Keeping your high-yield savings account at a different bank from your checking can also help separate your savings from your spending.

CDs and Money Market Accounts

Your strategy: Saving
The tool you need: CDs, money market accounts

Option: For goals like buying a house in a couple of years, a CD can be a good choice. CDs lock in your money for a set period, offering a guaranteed rate of return, usually higher than a traditional savings account. You can open a CD online with most banks or investment brokerages. If you’re concerned about accessing your money, consider a CD ladder, which staggers your investments to ensure you have funds maturing regularly.

Money market accounts are another option, offering high interest without locking in your cash. These can be great for transitioning from saving to investing.

Invest for Long-Term Goals

Your strategy: Investing
Tools you need: Brokerage account or robo-advisor

Option: For long-term goals like funding your child’s college education, investing is a good strategy. Start by assessing your risk tolerance. Would you prefer having 100% in cash and seeing the market rise, or 100% in the market and seeing it fall by 29%? Your risk tolerance helps you decide on a portfolio mix, like 60% stocks and 40% bonds.

For young investors, a long-time horizon means short-term fluctuations are less relevant, so investing heavily in stocks might make sense. Most investing, like saving, can be done with a few clicks online. You can buy popular ETFs like VTI (Vanguard Total Stock Market Index Fund ETF) easily. If you’re hesitant about investing on your own, consider robo-advisors or professional advisors, which can offer tailored investment advice based on your financial situation.

Remember to diversify your investments to protect against downturns, spreading your money across different asset classes and sectors.

Invest for Retirement

Your strategy: Investing
The tools you need: 401(k), 403(b), IRA

Option: If you’re working, make sure you’re using an account like a 401(k) or 403(b) to save for retirement. Aim to max out your 401(k) or other workplace plan and at least contribute enough to get your company match.

Consider setting up automatic annual increases for your contributions, usually by 1%. Anything you don’t have to think about will help you save. If your employer matches 4%, save at least 5%—that’s just a day’s lunch money. Over time, you won’t even notice the difference. After a year, think about increasing your savings by 2% or even 3% each year.

If your company doesn’t offer a plan and you have earned income, you can start your own IRA or Roth IRA with an investment firm and contribute up to the yearly IRS limit. There are also options for self-employed retirement accounts with higher limits.

Should You Seek Professional Advice?

While you can go it alone with the advice above, sometimes getting personalized guidance from a professional can be smart. Experts suggest seeking a pro’s help during major life changes (marriage, having a child, etc.), if you want a solid retirement plan, or if you need reassurance that you’re on the right track.

If the stock market is volatile and you’re thinking about making big changes to your investments, a pro can offer valuable advice. A seasoned professional might tell you it’s a great time to maintain and even add to your portfolio to take advantage of lower stock prices. In the end, make the best financial decisions for your situation.