What Is a Money Market Account? Here’s What You Need to Know

Consumers today have more options than ever for spending and saving money. Often, these activities occur within two kinds of bank accounts: checking and savings. But one type of account “blends” features of both, offering more flexibility and earning potential. 

Here’s what to know about money market accounts. 

What is a money market account and how does it work?

A money market account (MMA) is a type of deposit account, like a checking or savings account. Though technically classified as savings, MMAs combine features of both. 

You can open an MMA with many banks and credit unions. After setting the account up, you deposit your money and (usually) earn a higher interest rate than the institution’s non-MMA accounts. Some also issue debit cards or checks linked to the account so you can spend your savings. 

But MMAs have some important limitations. They might cap how many fee-free transfers you can make each month. So, while you can spend from your account, they may be best used for large or one-off expenses. Additionally, MMAs may set different balance minimums than checking or savings accounts. 

This combination of features can make MMAs an ideal place to stash short- to medium-term savings, like emergency funds. However, they’re not ideal for every situation.   

Money market accounts: Key features

Like all financial accounts, MMAs come with a unique set of features and considerations. Here are the main ones to know.  

High balance requirements

Some money market accounts set high minimum balance requirements — up to $5,000 or more! Even if you can open an account for less, your average balance may determine the interest rate according to tiers. (E.g., you might earn 3% on balances under $5,000 and 4% on balances over $5,000.) The best rates usually go to accounts that maintain at least $10,000 to $25,000. 

Insured savings

Similar to deposit accounts, money market accounts qualify for FDIC/NCUA insurance. The Federal Deposit Insurance Corporation (FDIC) protects traditional banks. The National Credit Union Alliance (NCUA) covers credit unions. Both types of institutions must insure customer deposits for at least $250,000. 

Importantly, this $250,000 limit applies to accounts in each account type, like joint vs. single accounts. If you have both a checking and savings account at one bank, these balances fall under the individual account type with a $250,000 total insurance limit. But if you own a third account with your spouse, that joint money has its own $250,000 limit. 

Limited withdrawals and transfers

MMAs may come with debit cards or checks linked to your account for easy access. However, as with savings accounts, money market accounts aren’t for everyday banking. 

Formerly, a federal law, Regulation D, limited you to six “convenient” transfers or withdrawals from savings and MMAs each month. Trying to move money more often resulted in extra fees or even account closure. (“Less convenient” transactions didn’t count toward this limit. These included ATM withdrawals, in-person bank transactions, or mail transfers.) 

This provision of Regulation D was suspended during Covid-19 and has not been reinstated. While some banks still follow the old rule, others now set higher limits. However, most MMAs still have strict monthly transfer limits due to their higher yields. So, be sure to read the fine print before opening an account! 

Money market accounts vs. savings accounts

Money market accounts are just one place to earn interest on your stashed cash. Savvy savers might also consider savings accounts and CDs. But before you choose, you should know the key differences:

• Savings accounts typically set the lowest interest rates and barriers to entry of the three. Most don’t issue debit cards or checks, making it easier to stick with your savings plan. High-yield savings accounts may offer higher interest rates than traditional savings accounts, often through online banks.
• Money market accounts historically offer better rates than traditional savings accounts. However, they may set higher opening or balance requirements. And while many issue debit cards or checks, your spending ability depends on banks’ monthly withdrawal limits. 
• Certificates of deposit (CDs) may offer higher interest rates with varying opening or balance requirements. However, they “lock” your money away for months or years while they accrue interest. Removing your funds early may result in financial penalties. 

Another option for savvy savers

MMAs offer many benefits — but they’re still often subject to banks’ withdrawal limits and high minimum account balance requirements. If you’re in the market for a potentially more accessible high-yield account, consider a high-yield checking account. 

High-yield checking accounts typically boast several advantages, like:

• Free checking
• No minimum balance requirements
• The potential for interest rates that rival or beat MMAs

However, as with many high-yield accounts, banks may set conditions. 

For instance, they may require you to make a certain number of eligible debit card transactions each month. You may have to make regular deposits, enroll in online banking, and/or agree to receive electronic statements. 

Plus, many banks cap your interest rate based on your balance. For example, you may earn 5% on up to $15,000, but only 3% on any amount over that. 

Choose a savings account that fits you

There’s no universally “best” savings account, but some may fit your circumstances better than others. MMAs can be a good option if you want (limited) access to your savings for large purchases or emergencies. 

Alternatively, you may prefer the lower barriers to entry offered by regular savings or CDs, or the increased spending flexibility of a high-yield checking account.