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.

CDs are federally insured, just like you’re checking and savings accounts, but they usually come with much better interest rates. In 2023, some CD rates hit 6% or more. The catch? Unlike other bank accounts, CDs require you to lock up your money for a set period, which can range from a month to five years or more.

That’s where a CD ladder comes in handy. This strategy involves splitting your savings into several CDs that mature at different times. This way, you can earn the most interest possible while still having access to some of your money.

The ladder is a very simple tool that gives you the maximum amount of flexibility.

How to Find the Best CD Ladder Rates

CDs usually pay higher interest rates than checking and savings accounts because they require you to lock up your money for a specific period. For example, in October, the average savings account paid 0.46%, while average CD rates ranged from 0.22% to 1.50%. Online banks and credit unions often offer even better rates.

Rates vary based on the length of the CD and how much you deposit. Typically, the more money you’re able to invest and the longer the term, the better the rate you’re going to get.

While some big national banks have started offering competitive CD rates, it’s also worth checking out online banks, local community banks, and credit unions. CDs are available in various terms, from a few months to five years or more. Some institutions even offer CDs with terms as short as 30 days, but those usually don’t have great returns.

Banks often have promotional CD rates, too. These rates might look appealing but aren’t always ideal for laddering because they often come in odd terms, like 11 months instead of a full year.

How to Set Up a CD Ladder

A CD ladder is a savings strategy that offers the higher yield of a CD with the flexibility of a savings account.

You create a CD ladder by dividing the amount you want to save into smaller portions and putting those into individual CDs with staggered maturity dates. When a CD matures, you roll those funds into a new CD, potentially at a higher interest rate.

Here’s a simple example: Let’s say you have $15,000 to invest in CDs. Instead of putting it all into one CD, you could create a ladder with three different CDs:

• $5,000 in a 3-month CD
• $5,000 in a 6-month CD
• $5,000 in a 1-year CD

When the 3-month CD matures, you roll it into a 6-month CD. This way, at any point, you’ll have access to $5,000 every three months, giving you a nice balance of earning interest and keeping your money accessible.

How Much Money Do You Need for a CD Ladder?

While some banks have minimum deposits of $1,000 or more for CDs, many set the bar lower, or have no minimum at all. This means you can build a CD ladder even with a modest amount of money. If you aim for a five-year ladder and use CDs with a $500 minimum deposit, you could start with as little as $2,500.

How Long Should a CD Ladder Be?

A three-year or a five-year ladder are oftentimes best, because longer-duration CDs generally offer higher returns than shorter-term ones. If you think you’ll need the funds in less than three years, a high-yield savings account might be a better option, offering similar interest rates without the limitations of a CD.

Most CDs have penalties if you withdraw funds before maturity, ranging from 30 days to a full year’s worth of interest, depending on the term. If you don’t want to risk it, look for a no-penalty CD, but note that they usually have lower interest rates than traditional CDs.

What Are the Benefits of CD Laddering?

The main benefit of laddering is that you always have access to some portion of your savings within a relatively short time frame. While not a substitute for an emergency fund, a CD ladder can effectively augment one. If the first CD in your ladder matures in three months, you can keep enough money in a regular savings account to cover expenses during those three months and invest the rest in a ladder of CDs with higher interest rates.

In a rising interest rate environment, laddering CDs helps you capture potential rate increases. If you had locked $10,000 into a three-year CD in 2021 or 2020, you’d probably regret it now. But if you split that total into $2,000 blocks with staggered maturity dates, you would have the chance to reinvest part of your savings at higher rates as the Fed raises interest rates to combat inflation.

Laddering also allows you to benefit from the higher yields offered by longer-term CDs. Once you have a ladder with regular maturity dates, each new CD you buy will have a term corresponding to the farthest date of your ladder, letting you earn extra interest while keeping some of your money accessible.

How Many CDs Can You Have at One Bank?

There’s no limit to how many CD accounts you can have at one bank, but FDIC insurance typically covers only up to $250,000 in deposits at a single institution. If you plan to have more than that in CDs, spread your accounts across several banks to ensure your funds are fully protected.

What Are Some Alternatives to a CD Ladder Strategy?

Experts suggest that you can use the laddering technique for other types of financial products as well. Any low-risk, fixed-income instrument works well in a ladder. It could be a CD, a Treasury, an investment-grade corporate, or municipal bond.

Short-Term Treasurys

Like CDs, short-term Treasurys are sensitive to Fed rate changes and offer marginally more favorable tax treatment. Earnings are taxed federally at ordinary income rates, but interest on deposit accounts (including CDs) and corporate bond yields are also taxed at the state and local levels.

No-Penalty CDs

One of the biggest drawbacks of CDs is the penalty for early withdrawal. Some banks offer non-penalty CDs, but these typically have lower rates of return.

Brokered CDs

Brokered CDs, bought through brokerage accounts, offer higher returns than conventional CDs without risking your principal. They allow you to hold CDs with multiple banks and credit unions at once, helping to ensure FDIC insurance coverage (since the limit is $250,000 per institution).

Brokered CDs can also be sold before maturity without early withdrawal penalties, but they are callable, meaning the bank can terminate the CD at any time.

Savings Accounts

If you prefer not to lock away your money or don’t want to manage CD rollover dates, consider high-yield savings accounts. While CDs offer higher APYs, many online and some traditional banks offer savings accounts with returns of 4% or higher.

For those with the time and funds, a CD ladder is a risk-free strategy that can earn higher returns over time. The nice part about laddering CDs is you’re getting a higher rate for your savings, but you’re still able to maintain that liquidity.

Knowing the ins and outs can give peace of mind

What is FDIC

Bank failures—like what just happened with Silicon Valley Bank—can be pretty nerve-wracking, making you worry about losing all your savings overnight. But don’t stress too much, because the Federal Deposit Insurance Corp. (FDIC) has got your back.

The FDIC was set up by Congress back in 1933, after a bunch of bank runs contributed to the Great Depression. Its main job is to protect the money of everyday depositors. By guaranteeing that your money is safe, the FDIC helps prevent the kind of panic withdrawals that can even take down healthy banks.

While the FDIC officially insures up to $250,000 per depositor, there are simple and legal ways to increase that coverage so that all your savings are protected.

So, if the news about Silicon Valley Bank—or Signature Bank, which also recently had issues—has you thinking about pulling your money from your bank, take a deep breath and relax. The answer is probably, “no need.”

Read on to find out how the FDIC works and exactly what is covered.

FDIC Insurance coverage limits

For most deposit accounts like checking and savings, the FDIC insurance limit is $250,000. That’s usually enough for most people, but there are a few things to keep in mind.

The $250,000 limit is per bank, per depositor, and per “ownership category.” Ownership categories include single accounts, joint accounts, certain types of trust accounts, corporate accounts, government accounts, and some retirement and benefit accounts.

This setup means you can actually get more than $250,000 in coverage. For example, if you have $250,000 in a savings account at Bank A and another $250,000 in a savings account at Bank B, you’re covered for $500,000 total. But if you have $500,000 split between a checking and a savings account at one bank, only $250,000 is insured.

You can also boost your coverage limits without using multiple banks. For instance, if you have a savings account in your name and a joint account with your spouse, your family is covered up to $750,000. That’s because the FDIC treats joint accounts as a different ownership category from single accounts, insuring them up to $250,000 per depositor.

Here’s another tip to ensure you’re covered: look beyond your bank’s brand name, especially if you have a high-yield savings account or CD.

Many digital banks are actually brands of traditional banks. For example, BrioDirect is the digital brand of Webster Bank, and UFB Direct is a brand of Axos Bank. These digital banks do carry FDIC insurance, but if you have deposits at both the online brand and the physical parent bank, they might fall under the same $250,000 FDIC coverage limit.

If you’re unsure, you can check the FDIC-member bank for your account using the FDIC’s BankFind tool.

Also, be diligent about FDIC insurance if you keep money with a nonbank fintech company. Many of these neobanks partner with FDIC-member banks for deposit coverage, but the FDIC advises caution. Make sure you understand the terms of how, when, and where your money is insured through the firm’s FDIC-member bank partner.

Keep reading to learn how the FDIC works and what it covers.

What does FDIC insurance cover?

FDIC insurance covers everyday bank accounts like checking and savings accounts, whether they earn interest or not. It also covers other types of deposit products, including money market deposit accounts and CDs.

However, FDIC insurance doesn’t cover everything. It does not protect stocks, bonds (including municipal bonds), mutual funds, life insurance, annuities, or crypto assets, though these might be covered by other types of insurance. It also doesn’t cover U.S. Treasurys, but these are backed by the U.S. government, making them a safe investment.

Here’s a quick rundown:

Are money market accounts FDIC insured?

Yes, FDIC insurance includes money market deposit accounts, but it doesn’t cover money market mutual funds, which you buy through a broker.

Are CDs FDIC insured?

Yes, certificates of deposit (CDs) are FDIC insured, up to the coverage limits. The exception is brokered CDs, which are bought through brokers and aren’t covered by FDIC insurance.

Are credit unions FDIC insured?

No, FDIC insurance doesn’t cover credit unions. Instead, credit union deposits are insured by the National Credit Union Administration (NCUA), which offers the same $250,000 coverage per depositor.

From a customer perspective, NCUA insurance is just like FDIC insurance. If you bank with an NCUA member institution, you automatically get NCUA insurance coverage, just like with FDIC member banks.

Are brokerage accounts FDIC insured?

No, brokerage accounts aren’t covered by FDIC insurance. Investment products like stocks, bonds (including municipal bonds), and mutual funds are not protected. If your brokerage account loses value, that’s a risk you take as an investor.

However, there’s some protection through the Securities Investor Protection Corporation (SIPC), an independent organization for broker-dealers. If your brokerage account is with an SIPC-member company and it fails, SIPC covers lost cash and securities up to $500,000 per customer, per institution, including a $250,000 limit for cash. This limit applies even if you have multiple accounts with the same brokerage.

Are crypto exchange accounts FDIC insured?

No, crypto exchange accounts are not FDIC insured. The FDIC doesn’t cover nonbank assets, including cryptocurrency. It also doesn’t protect against losses from fraud or theft.

The crypto market operates in a regulatory gray area, so you don’t get the same protection as you would with cash in a bank or credit union. Cryptocurrency exchanges, brokers, custodians, and wallet providers are all outside the FDIC’s supervision and coverage.