If you’re looking for ways to keep your cash safe from market ups and downs while still having it handy for bills or emergencies, a money market account could be just what you need. These low-risk deposit accounts combine the earning potential of a savings account with the convenience of a checking account.
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.
