What is a Money Market Account and How Does it Work? Here Is What You Need to Know

A money market account (MMA) is a type of deposit account similar to a checking and savings account. 

Like standard savings accounts, MMAs generally offer higher interest rates than checking accounts do. But these accounts also come with a debit card or checks, giving you easier access to your money than you’d have with a regular savings account.

The combination can make MMAs an ideal place for short- to medium-term savings, such as an emergency fund. However, MMAs aren’t for everyone. Here is what you should know:

What Is a Money Market Account and How Does it Work?

Money market accounts work like other types of savings accounts. You can open an account at a bank or credit union, deposit your money, earn interest, and withdraw your money when you need it.

The primary trade-off is that you’ll be rewarded with more interest than you’ll get from the financial institution’s non-MMA savings account. But, you may also need to keep a lot of money in the account.

Here are a few of the main features and drawbacks to money market accounts:

High Balance Requirements

Some money market accounts have high minimum balance requirements, such as $1,000 to $5,000 to open the account. Even when you can open an account with a lower balance, the account may have tiered interest rates that rise based on your balance. The best rates may go to customers who have at least $10,000 or $25,000 in their account.

Insured Savings

Your money market account will be covered by the bank’s or credit union’s insurance. You can have up to $250,000 in total funds covered by the Federal Deposit Insurance Corporation, or FDIC (for banks) or the National Credit Union Alliance, or NCUA (for credit unions).

Easy Access to Your Money

You may receive a debit card or checks linked to your account, making it easy to access and use your savings. However, as with savings accounts, money market accounts aren’t for everyday banking.

Limited Withdrawals and Transfers

A federal law — Regulation D — limits you to six fee-free withdrawals or transfers from your account each month. Certain transactions don’t count toward the limit, such as withdrawals or transfers at ATMs, in-person transactions at a branch, and a phone request for a mailed check.

Money Market Accounts Vs. Savings Accounts

If you’re looking for a safe place to store your savings while earning interest, you may want to compare regular savings accounts, money market accounts, and certificates of deposit (CDs).

You can use any of the accounts to set money aside for your financial goals, but one of the options may be a better fit for your situation.

• Savings accounts may offer the lowest interest rates of the three, but also often have low balance requirements. You can’t easily access your money, which benefits those who want a barrier between their everyday spending and their savings.
• Money market accounts can offer more interest if you meet the high balance requirement. You also get easier access to your money.
• CDs may offer the highest interest rate of the three, but you have to lock your money in the account for months or years. You may have to pay a penalty if you take your money out early.

	Regular savings accounts	Money market accounts	Certificate of deposit
Requires a large initial deposit
Offers the bank’s top interest rates
Allows six fee-free monthly transactions
May offer a debit card or checks
FDIC Insured
Charges a fee for early withdrawals
ATM access
Allows fund transfers between accounts

These are generalizations about how the accounts work and their pros and cons. If you research all your potential options, you may find that some banks and credit unions are offering accounts that buck the trend.

Two Potentially Better Options for Savvy Savers

While money market accounts have traditionally offered a higher interest rate for those with large savings, you may find that online deposit accounts and high-yield checking accounts can be even more beneficial.

Online banking poses a few limitations — it can be difficult to deposit cash, for example. But if you’re comfortable managing your finances online, one of these accounts can be a win-win, as these often have high interest rates, no minimum deposit requirements, and few fees.

Another option worth looking into is a high-yield checking account. These accounts may have low balance requirements and few fees — some even refund ATM fees. They can also offer a much higher interest rate than savings accounts, including MMAs and CDs. You’ll also have easy access to your money without any monthly transaction limits.

However, high-yield checking accounts can require a little extra work. Generally, you’ll have to meet certain requirements, such as using your debit card for 10-15 purchases each month, having direct deposits into the account, and agreeing to receive electronic statements rather than paper statements. Additionally, the high interest rate often applies only to the first $5,000 to $15,000 in the account.

Choosing the Best Savings Account 

There’s no universally best type of savings account, but certain accounts may be a better fit depending on your circumstances and preferences.

Money market accounts can be a good option if you want to keep a lot of money in savings and have easy access to the funds.

However, if you don’t mind slightly limited access, an online savings account may offer more interest with fewer requirements. Or, if you can meet the requirements and avoid temptation to spend savings that are mixed in your checking account, a high-yield checking account may offer the highest rates and fewest fees of them all.