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A money market account is a financial product offered by banks and credit unions that allows you to safely store your funds while earning some interest. Money market accounts blend the features of both checking and savings accounts, offering a combination of growth potential and limited access to your money.
Here’s what makes money market accounts unique and what you need to know to determine if they’re a good fit.
How do money market accounts work?
Money market accounts are similar to savings accounts, but they have some transactional features such as checking accounts. For example, a money market account may come with a debit card and checks, making it easier to access your money compared to a traditional savings account.
Read more: The differences between money market accounts, savings accounts and CDs.
Money deposited into a money market account earns interest — a key advantage over standard checking accounts, which typically pay little to no interest. Although more banks now offer high-yield checking accounts, money market accounts still generally provide more competitive rates.
Read more: Money market account vs. checking accounts.
Most money market accounts have these features:
- Minimum deposit requirements: Many money market accounts require a minimum deposit to open, often ranging from $500 to $2,500, with some premium accounts requiring $10,000 or more.
- Minimum balance requirements: To avoid monthly maintenance fees, which can range from $5 to $25, account holders typically need to maintain a certain minimum balance.
- Tiered interest rates: Higher balances often earn better interest rates, with rate tiers that might start at $5,000, $10,000 or $25,000.
- Limited transactions: While the six-withdrawal federal limit (Regulation D) was suspended in 2020, many banks still impose transaction limits on money market accounts.
- Variable interest rates: The APY on money market accounts can change based on market conditions and Federal Reserve policy.
When comparing money market accounts, look beyond the headline interest rate. Consider minimum balance requirements, fees and accessibility. If you have a larger balance, tiered-rate accounts often provide the best returns, while those with smaller balances might benefit more from a high-yield savings account with no minimums.
— Hanna Horvath, CFP®
What are the advantages of money market accounts?
Money market accounts offer certain benefits that make them ideal for certain financial goals:
- Safety: The money you place in a money market account is insured for up to $250,000 per account owner and $500,000 for joint accounts at banks and credit unions that are federally insured by the FDIC or NCUA.
- Competitive interest rates: While rates vary by institution, money market accounts frequently offer higher yields than standard savings accounts. The best money market accounts right now offer APYs of more than 4 percent, higher than the national average.
- Greater access to funds: Money market accounts typically come with a debit card and checks, offering more ways to access cash than a traditional savings account.
- Flexibility for short-term goals: The combination of decent returns and relative liquidity makes money market accounts best for emergency funds or saving for near-term expenses.
Read more: Bankrate’s list of the best money market accounts.
What are the disadvantages of money market accounts?
Despite their benefits, money market accounts have some drawbacks to think about:
- Higher minimum requirements: A money market account may require a considerably larger deposit than a savings account. In many cases, accounts require $1,000 or more to open or earn the highest rate.
- Potential transaction limitations: Although federal regulations no longer require transaction limits, many banks still restrict withdrawals and transfers from money market accounts to six per statement cycle, giving them less flexibility than standard checking accounts.
- Possible fees: Without meeting minimum balance requirements, account holders may face monthly maintenance fees ranging from $5 to $25.
- Rate competitiveness varies: While money market accounts can offer higher yields than savings accounts, this isn’t universally true. High-yield savings accounts from online banks often match or exceed money market account rates, especially for lower balances.
Who should have a money market account?
Money market accounts are best for those saving for short-term goals, such as:
- Emergency fund savers: If you’re building an emergency fund aiming for 3-6 months of expenses, a money market account offers a good balance of growth and accessibility.
- Short-term goal planners: For saving toward goals a few years away, like a down payment or upcoming vacation, money market accounts offer better returns than checking accounts while still maintaining accessibility.
- Safety-focused investors: Those who prioritize capital preservation but want better returns than traditional savings accounts may find money market accounts appealing.
- Balance holders: If you maintain larger cash balances and might need occasional access, tiered money market accounts can provide competitive returns.
- Business owners: Many banks offer business money market accounts that allow companies to earn interest on their funds while maintaining some liquidity.
“A money market can be appropriate for money you don’t need right away, but is also not appropriate for a long-term need you might invest for,” says Charles H. Thomas III, CFP, founder of Intrepid Eagle Finance. “Something like an emergency fund or rainy day fund could be an appropriate use for a money market.”
For longer-term goals like retirement, investments like certificates of deposit (CDs), brokerage accounts or tax-advantaged retirement accounts would be better due their potential for higher returns over time.
Money market accounts vs. other accounts
When deciding where to keep your money, it’s helpful to understand how money market accounts compare to other banking products:
| Feature | Money market account | Savings account | Checking account | Certificate of deposit (CD) |
|---|---|---|---|---|
| Interest rates | Moderate to high | Low to moderate | Very low or none (avg. 0.04%) | Moderate to high (varies by term) |
| Access to funds | Limited (often 6 withdrawals/month) | Limited (often 6 withdrawals/month) | Unlimited | Limited until maturity |
| Check writing | Usually available | Not typically available | Available | Not available |
| Debit card | Often available | Sometimes available | Available | Not available |
| Minimum balance | Often high ($500-$25,000) | Low or none | Low or none | Varies ($500-$10,000+) |
| Best for | Emergency funds, short-term savings | General savings | Day-to-day expenses | Known future expenses |
Can you lose money in a money market account?
You won’t lose money in a money market account if you work with a financial institution that’s federally insured. The Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) insure money market and other accounts at member financial institutions for up to $250,000, so they’re protected should a financial institution fail.
While yields can fluctuate on a money market account based on market conditions, you can’t lose any principal that’s already in the account, as you might with more volatile investments.
This makes money market accounts considerably safer than stocks, bonds or even money market funds, which are investment products that aren’t FDIC-insured.
Read more: Money market account vs. money market fund
The only ways you might “lose” money in a money market account are through:
- Fees that exceed the interest earned
- Inflation outpacing your interest rate, reducing your purchasing power
- Early withdrawal penalties with certain promotional money market accounts
- Fraudulent activity
Bottom line
Money market accounts offer a middle ground between the liquidity of checking accounts and the growth potential of savings accounts. They offer a solid option for emergency funds and short-term savings goals.
Whether a money market account is right for you depends on your financial situation, goals and how much access you need to your funds.
