What Is a Money Market Account?

Javier Ghersi/Getty Images

Key takeaways

The best money market accounts offer rates in line with high-yield savings accounts, while also offering everyday spending capabilities such as a debit card or checkbook.
Most money market accounts limit the number of withdrawals you can make per statement cycle. If you exceed this limit, you’ll pay excessive transaction fees.
Money market accounts are protected by federal deposit insurance when held at an FDIC-insured bank or NCUA-insured credit union.

If you’ve never heard of a money market account before, you might be a bit confused about what the account actually does. Is it a savings account? Kind of. Is it a checking account? Sort of. Are there minimum balance requirements and transaction restrictions? Sometimes.

While there are nuances to consider, the best money market accounts will help you earn a sizable chunk of interest while giving you the peace of mind of federal deposit insurance insurance. Read on to learn about how money market accounts work, what distinguishes them from other traditional bank account offerings and why it’s important to avoid mixing them up with money market funds.

A money market account is a type of savings account that combines the interest-earning benefits of a savings account with the accessibility of a checking account.

MMAs were created in the 1980s to attract smaller investors and circumvent large investment requirements to access higher rates available for Treasury bills. In those days, the minimum investment requirement started at $100,000 -- leaving most small investors on the sidelines.

Fast forward to today. MMAs are well-known financial products offered by some banks and credit unions. They earn variable interest, the market rate -- hence the name “money market.”

How a money market account works

The interest earned on an MMA is variable, meaning it fluctuates in reaction to market conditions just like savings account rates. As the Federal Reserve modifies the benchmark federal funds rate, banks raise or lower interest offered on deposit products. Additionally, a money market account can also offer a tiered rate -- the higher your account balance, the higher your interest rate.

Many MMAs offer debit card access and check-writing privileges like standard checking accounts. However, there’s normally a limit on the number of withdrawals you’re allowed monthly. Under the excessive transaction rule, known as Regulation D, savings accounts were restricted to six withdrawals a month, excluding ATM withdrawals. In 2020, Regulation D was suspended in response to the COVID-19 pandemic, though some banks have continued to charge fees if you exceed six withdrawals a month.

MMAs generally offer higher interest rates than traditional savings accounts, but you might need to meet a higher initial deposit or maintain a certain minimum balance. Some banks charge monthly maintenance fees, but some may waive this fee if you maintain a minimum balance. It’s worth reviewing a bank’s requirements before deciding if its MMA is right for you.

Pros and cons of a money market account

Pros

FDIC- or NCUA-insured: A money market account is considered a low-risk investment because it is insured up to $250,000 per person, per account category, by the Federal Deposit Insurance Corporation (for banks) or the National Credit Union Administration (for credit unions).
Easy access: Most banks provide debit card access and check-writing privileges, making MMAs liquid and easily accessible.
More flexibility: Unlike CDs, you can deposit additional money at any time.
Competitive rates: Higher balances earn higher interest rates for accounts that operate on a tiered model.
Several MMA options: Most banks and credit unions offer MMAs through digital banking services so accounts and benefits can be compared nationwide to locate the best deals.

Cons

Withdrawal restrictions: Some banks may limit the number of transfers and withdrawals you can make each month. Surpassing that limit will incur an excessive transaction fee.
Minimum balance requirements: MMAs typically have higher initial deposit requirements than savings accounts, incurring added fees for dipping below the minimum.
Less predictable returns: Interest rates are generally variable, making your return less predictable. Rates can go up or down at any time, meaning you’re at risk of a lower return if rates drop.
Subject to federal and state taxes: Interest earnings are taxable income, though this is true for any deposit account.
Lower yields than other long-term bank products: While MMAs earn higher interest than traditional savings accounts, you can earn higher returns on long-term savings with CDs or other investment accounts.

How to open a money market account

You can easily open a money market account online at traditional or online banks or apply in person at brick-and-mortar locations. Compare rates, restrictions and benefits at multiple financial institutions to ensure you’re selecting the account with the best benefits.

After you find the MMA that’s best for you, here’s what to do:

Submit an application online or at a physical bank: Most banks require personal information, such as your name, phone number, date of birth, Social Security number, address, income and employment status.
Complete verification requirements: You may have to verify your identity by submitting an identification card or proof of address.
Fund your money market account: If you aren’t prompted to deposit funds during the application process, you can deposit funds to meet minimum funding requirements once your account is open.

CNET Money brings financial insights, trends and news to your inbox every Wednesday.

By signing up, you will receive newsletters and promotional content and agree to our Terms of Use and acknowledge the data practices in our Privacy Policy. You may unsubscribe at any time.

Here’s all of the excitement headed to your inbox.

How does a money market account differ from a savings account or a certificate of deposit?

A money market account differs from a traditional savings account in two key ways:

Convenient spending features: A money market account usually offers debit card access and check-writing privileges, while most savings accounts don’t.
Transaction limits and balance requirements: A money market account generally limits the number of times money can be transferred or withdrawn per month and requires a minimum balance to avoid monthly service fees. Some savings accounts may have one or both of these requirements, but many don’t.

There are also several differences between a money market account and a certificate of deposit, or CD:

No term lengths to worry about: Money market accounts don’t have any term lengths, while CDs tie your money up for a period of time. CD terms typically range from three months to five years (though shorter and longer terms than this exist).
No early withdrawal penalties: If you want to take some or all the money out of a money market account, you can do it anytime. However, if you withdraw funds from a CD before the term is up, you’ll pay early withdrawal penalty fees and may miss out on a few months’ worth of interest.
No restrictions on adding funds: With a money market account, you can make deposits whenever you want, while traditional CDs don’t allow you to add more to the account after it’s opened. This means if you want to invest more funds in a CD, you’ll need to open a new account or park your money elsewhere.

What’s the difference between a money market account and a money market fund?

A money market fund is a mutual fund that invests in short-term debt like government bonds, cash and cash equivalents. Investors purchase shares and earn returns in the form of capital gains. Money market funds are considered low-risk investments, but they aren’t insured by the FDIC like MMAs are.

	Money market account	Money market fund
How to open	At a bank or credit union	Sold by brokerages and investment firms
Type of account	Deposit	Investment
Interest rate	Variable interest rate	Variable interest rate
Minimum deposit	Some banks and credit unions have minimum deposit requirements	Typically low minimum purchase requirements
Risk	MMAs at FDIC-insured banks and NCUA-insured credit unions are insured for up to $250,000, per person, per account	Money invested in MMFs isn’t insured by the FDIC or NCUA, but the Securities Investor Protection Corporation, or SIPC, protects cash and securities in your brokerage account for up to $500,000 (if your firm is a SIPC member)
Access	Some accounts offer debit card and check-writing privileges	Generally no debit card or check-writing privileges
Liquidity	Some banks and credit unions limit monthly withdrawals	Unlimited withdrawals
Fees	Some banks and credit unions charge monthly maintenance fees and excessive transaction fees	Management fees in the form of an expense ratio

Is a money market account worth it right now?

A money market account can be a great fit in today’s high-interest-rate environment. Many of the best money market accounts offer competitive annual percentage yields, or APYs, well above the FDIC’s national average, which is currently 0.663%. The best MMAs offer APYs over 4%, based on the banks we track at CNET.

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. No matter what kind of account you choose, it’s important to take simple steps to grow the balance such as setting a monthly budget and automating transfers.

How to choose the best money market account

When opening an MMA, there are several features to compare before deciding which is best.

Review minimum deposit requirements. This will help you decide if an account will work with your savings budget. Note any minimum balances required to avoid service fees. Such service fees will cut into earnings growth and should be avoided when possible.
Compare interest rates. It’s important to research accounts nationwide to find the best rates available. With the prevalence of online banking, geography isn’t an impediment to finding the highest interest rates.
Make note of all fees associated with the account. It’s important to understand all fees and any restrictions that can result in penalties to ensure your account growth is not compromised.

The bottom line

Money market accounts are best for savers looking for safe, low-risk savings options that have enough money to satisfy the higher initial deposit requirement. These accounts are best for short-term savings and people who won’t need to make numerous monthly withdrawals. But make sure to compare rates and weigh your options based on your savings goals before you jump in.

This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.

What Is a Money Market Account?

Key takeaways