What Is a Money Market Account?

Photo illustration to accompany article that explains what money market accounts are Grant Crowder and Getty Images
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Somewhere between savings and checking is the MMA, or money market account. 

Like a high-yield or traditional savings account, you can use a money market account to securely save money while earning interest on your deposits. But MMAs also have some features that are generally associated with checking accounts, like the ability to write checks or use a debit card.

Traditionally, money market accounts also offer higher returns than most savings accounts — but with the growth of high-yield savings accounts those margins have become thin, if not nonexistent. Still, as federal interest rates have risen this year, MMA rates have increased alongside savings account rates. Today, the best money market account rates are nearing 2.00% APY.

Here’s everything you need to know about how a flexible MMA might benefit your financial plan, plus some details to be aware of before opening one.

What Is a Money Market Account?

A money market account is similar to a high-yield savings account in that it offers a higher interest rate than your typical savings account at a big bank. But unlike savings accounts, MMAs allow more flexibility in accessing and using funds in the account. Not unlike checking accounts, MMAs offer the ability to write checks or use a debit card.

Why Choose a Money Market Account?

The main benefits of a money market account include competitive interest rates, accessibility, and security. 

Money market accounts historically offered higher interest rates than savings accounts, though the difference today is minimal given the rise of online high-yield savings accounts. Plus, they’re federally insured deposit accounts protected (up to $250,000 per institution) by the FDIC.

Money market accounts typically offer features more commonly found among checking accounts, making them a more liquid option for anyone who values easy access to their cash. Money market accounts may allow you to write paper checks, make payments online, and even transact with a debit card you can request upon opening your account.

Though many do offer access through debit card or check, money market accounts may restrict the number of transactions you can make without penalty. While federal Regulation D, which limited savings transactions to six transactions per month — excluding ATM withdrawals — was suspended during the pandemic, some banks still enforce a six transaction limit for account holders.

Generally, money market accounts are great savings vehicles for storing an emergency fund or short-term savings that you want to earn a bit of interest on while building up through regular contributions. 

However, make sure you understand the minimum balance requirements and fees associated with any MMA you consider, since they can be higher than savings accounts. These fees vary across institutions, so it’s worth shopping around for a product that suits your needs. For instance, if you’re already starting with a bit of a savings cushion, a minimum balance requirement may not be a drawback for you. 

Also keep in mind that you don’t have to commit to one type of account. For example, you may choose to keep your emergency fund in a high-yield savings account, a future travel fund in a money market account, and your down payment toward your next home locked in a CD.

Money market account vs. savings account

A money market account is most similar to a savings account, especially one through an online or brick-and-mortar bank that earns high interest.

“Fundamentally, they operate very similarly,” says Chantel Bonneau, wealth management advisor at Northwestern Mutual. . “In an environment like today where interest rates aren’t very high, the biggest value-add of having both of those is just separating your money so that your savings are something you don’t dig into unless it’s for a goal or an emergency.”

If you need quick access to your savings and you have enough to meet any minimum deposit requirements, you may feel more confident choosing a money market account. Otherwise, a savings account with a comparable interest rate will be just as effective — and a little less liquidity may keep you from dipping into your fund when you don’t actually need it.

Money market account vs. checking account

Money market accounts may be considered a type of hybrid between checking and savings accounts.

In fact, if you use your checking account for regular monthly expenses but complete most of your spending with a credit card or cash, an interest-earning money market account could function as a substitute for a traditional checking account.

“I think it’s a very practical thing to do,” says Sean Rogers, CFP, founder of Rogers Wealth Management Services in Bonita Springs, Florida. “There’s definitely an advantage to having all of that money in a money market account, because at least it’s earning something. A checking account is generally going to have no rate of return.”

You can use your provided debit card, checks, or automatic transfers to make regular monthly payments, just like you would with a checking account. But keep in mind that your money market account may be restricted to six withdrawals via debit card swipe, check, or online transfer each month, so research your account’s rules and be careful about how often you withdraw.

This isn’t the option for everyone: You may quickly run into problems if you’re not disciplined with your spending. 

Without an airtight strategy built on fixed, monthly expenses, “I would be more inclined to encourage clients to have two accounts: one for spending and one for saving,” Rogers says. “If they have some trouble being disciplined in how they manage their cash flow and all their spending, then it would be better to have separate accounts.”

Money market account vs. certificate of deposit

Whereas money market accounts are more flexible than savings accounts, CDs are a bit more strict — often in exchange for a slightly higher interest rate.

Like a money market account, you can benefit from already having a lump sum to deposit before you open a CD. However, while you can continue to build upon your initial MMA deposit, the money you put in a CD remains locked up throughout the CD’s term. Weigh the pros and cons for yourself to determine whether you can go without access to those funds while they’re locked in a CD. If you must remove them before maturity, you’ll risk paying a fee, such as several months’ interest.

CDs also have fixed interest rates, whereas money market accounts are variable. In a rising rate environment like today, that can be a drawback, since you won’t be able to take advantage of rising rates using the money you deposit for the duration of the CD’s term. That’s also why experts recommend short-term CDs today, even though longer-term CDs generally offer higher rates.

For emergency funds and short-term savings, you’re better off choosing a money market or high-yield savings account. If you have extra savings you don’t want to risk in the market or a cash cushion you’re saving for a fixed point in time in the future, consider a CD.

Money Market Account Pros and Cons

Pros

  • Secure accounts that are easy to open and offered by banks, credit unions, and other common financial institutions

  • Liquid and easily accessible with the added benefit of access to checks or a debit card

  • Deposited funds may earn more in interest than they would in a savings account

  • Your money is secure and FDIC-insured up to $250,000 in deposits.

Cons

  • Banks may restrict the number of withdraws and transfers monthly

  • May require a minimum deposit to open account and earn interest

  • May carry minimum balance requirements as well, incurring added fees for dipping below the minimum

  • While MMAs earn higher interest than other savings accounts, you can earn higher returns on long-term savings with CDs or investment accounts

  • Interest earnings are taxable income (this is true for any deposit account)

How to Get a Money Market Account

You can open a money market account with many online or brick-and-mortar banks by applying online or talking to a representative at a branch near you. 

Do your research beforehand to determine which institution may offer the most competitive fee structure, required minimums, and interest rates.

“Every institution has its own rules; you can only make a certain amount of withdrawals each month or they need to have a minimum for their institution or minimum without a fee,” Bonneau says. “So you always need to check the fine print for what’s relevant for you.”

And remember, your money market account is FDIC-insured for up to $250,000 in deposits, so you never have to worry about losing the money, even if the financial institution your account is with fails during an economic downturn.

Is a Money Market Account Worth It?

Money market accounts are ultimately not much different from high-yield savings accounts, though they do offer more flexibility than CDs (which have comparable rates today, too).

If you’re considering a money market account, compare offers from different banks to find one with a minimum deposit, fee structure, and interest rate that works best with your financial goals.

But remember, the specific savings vehicle you choose isn’t as important as the act of saving itself. 

“Your plan should dictate what products you need,” Bonneau says. “No product is the perfect product; it’s all relative to what problem it’s solving for you in your plan.”

If you’re just starting to build your savings upon a solid foundation, choose a suitable account, then work on developing a habit of saving regularly. This can help you secure a more stable financial future, even when hardship hits.

Frequently Asked Questions

Are Money Market Accounts (MMAs) Safe?

MMAs, like other bank accounts, are FDIC-insured. This means that the Federal Deposit Insurance Corporation (or National Credit Union Administration, if your account is with a credit union) will insure your money up to $250,000 in case the bank goes out of business. As long as the bank or credit union you use is FDIC-insured (and any legitimate financial institution should be), your money is safe. 

What Are Benefits of Money Market Accounts?

MMAs combine the features of checking and savings accounts, so they have the benefits of both. They tend to earn higher interest than savings accounts (although the difference has become negligible with the rise of high-yield accounts) but also offer checking account conveniences like access to checks and debit cards.  

What Are Disadvantages of MMAs?

MMAs tend to require higher opening deposits than savings and checking accounts, and some MMAs may also have minimum balance requirements to avoid fees. Plus, interest rates for MMAs may not be much higher than interest rates for savings accounts.