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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 account definition
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 of a money market account? ›
Indirectly losing money, however, is a downside of money market accounts. Indirect loss can occur if the interest rates tied to the account fall, thus diminishing the initial return value of your account.
Is it safe to put money in money market account? ›
The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.
What is meant by money market? ›
The money market involves the purchase and sale of large volumes of very short-term debt products such as overnight reserves or commercial paper. An individual can invest in the money market by purchasing a money market mutual fund, buying a Treasury bill, or by opening a money market account at a bank.
What is another name for a money market account? ›
Related Words
- interest-bearing account.
- money market account.
- nest egg.
- provision.
Yes, a money market fund is considered a cash equivalent because it can easily be converted to cash.
Which is an advantage of a money market account over a savings account? ›
The Bottom Line
However, some may choose money market accounts over savings accounts because they offer higher interest rates. While the difference in earned interest can be small, it might be enough to offset possible withdrawal limits posed by money market accounts.
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).
Do you pay taxes on a money market account? ›
The earnings from money market funds can come from interest income or capital gains, so they're taxed the same way as other investment income.
What is the best money market account right now? ›
Best Money Market Account Rates
- First Foundation Bank – 4.90% APY.
- All America Bank – 4.75% APY.
- Redneck Bank – 4.75% APY.
- Sallie Mae Bank – 4.65% APY.
- Prime Alliance Bank – 4.50% APY.
- Presidential Bank – 4.37% APY.
- BankUnited – 4.25% APY.
- U.S. Bank – 4.25% APY.
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's the catch with a money market account? ›
Key takeaways
They may come with the ability to pay bills, write checks and make debit card purchases. 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.
What is better than a money market 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.
Can a money market account lose money? ›
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.
Is a money market account better than a 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.
What is the highest paying money market account right now? ›
Best Money Market Account Rates
- First Foundation Bank – 4.90% APY.
- All America Bank – 4.75% APY.
- Redneck Bank – 4.75% APY.
- Sallie Mae Bank – 4.65% APY.
- Prime Alliance Bank – 4.50% APY.
- Presidential Bank – 4.37% APY.
- BankUnited – 4.25% APY.
- U.S. Bank – 4.25% APY.
Although interest structures can vary by bank or credit union, money market accounts usually compound interest daily, so the amount of interest you earn grows every day. However, the interest is only credited to your account — reflected on your account balance — monthly.
