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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
A money market account is a type of savings account that may also offer the ability to write a few checks or make a few debit card transactions each month.
What is the 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 $10000 make in a money market account? ›
A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year.
What's a money market account Reddit? ›
Usually it is used as a settlement account: if you deposit your money with a brokerage, it sits in a money market account until you do something else with it like invest into other funds. If you sell your shares of those funds, or if you get a dividend that isn't being reinvested it'll go back into the money market.
What is the downside of a money market account? ›
Disadvantages of money market accounts
For example, you often won't earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer.
What is a money market account good for? ›
Because you earn higher interest rates than with a traditional savings account, a money market account can be a great choice to set aside some emergency cash or start building your savings. And unlike a traditional savings account, you have more options for withdrawing your money when you want it.
Is a money market account like a savings account? ›
A money market account is also a deposit account that offers higher interest compared to a traditional savings account, but it also includes some capabilities more commonly found in traditional checking accounts, such as access to your funds via debit card or check.
Is a money market account like a bank account? ›
A money market account is neither a checking nor a savings account but has certain characteristics similar to both. Like regular checking accounts, money market accounts allow account holders to make withdrawals and transfers, and write checks.
Why is it called a money market account? ›
These markets are described as “money markets” because the assets that are bought and sold are short term—with maturities ranging from a day to a year—and normally are easily convertible into cash.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
How much will $50,000 make in a money market account? ›
Money Market Account
Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
Do you pay taxes on money market accounts? ›
Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.
Should I keep all my money in a money market account? ›
If you're saving for something you'll need the money for in less than three to five years, saving in a money market fund may make sense for you. Money market funds are ideal for short-term saving because they invest in highly liquid securities with the objective of capital preservation and income.
Can you withdraw money from a money market account? ›
You can withdraw money from your money market account whenever you'd like. However, your bank may place limits on how many withdrawals you can make in a single statement period. Additional withdrawals typically incur a fee.
What does Dave Ramsey say about money market accounts? ›
I suggest a Money Market account with no penalties and full check-writing privileges for your emergency fund. We have a large emergency fund for our household in a mutual-fund company Money Market account.
What is money market and how does it work? ›
Key Takeaways. A money market fund is a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents. Though not quite as safe as cash, money market funds are considered extremely low-risk on the investment spectrum.
What is the difference between a money market account and a savings account? ›
A money market account is also a deposit account that offers higher interest compared to a traditional savings account, but it also includes some capabilities more commonly found in traditional checking accounts, such as access to your funds via debit card or check.
Are money market accounts a good investment? ›
The takeaway
Money market accounts are a great option if you're looking to maximize the amount of interest you can earn in a low-risk setting. You'll have easy access to your money, your account is insured up to $250,000, and it's a great financial tool to help you reach your short-term savings goals.
