A money market account is a hybrid between a checking account and a savings account
A money market account (MMA) lets you write checks and use a debit card like a checking account, but it pays interest on your balance like a savings account. The tradeoff is that most money market accounts require a higher minimum balance to open—often $2,500 to $10,000, though this varies by bank—and they limit how many withdrawals you can make each month.
The interest rate on a money market account is typically higher than a regular checking account but lower than a dedicated savings account or money market fund. Banks set their own rates, so the difference between a checking account earning 0.01% and a money market account earning 4.50% can add up if you keep a large balance sitting there.
Money market accounts are FDIC-insured at most banks, meaning your money is protected up to $250,000 if the bank fails. This makes them safer than investing the same money in stocks or bonds.
Key Takeaways
- Money market accounts combine checking features (debit card, check writing) with savings features (interest payments), but require higher minimum balances than regular checking accounts.
- Most banks limit you to six withdrawals per month on a money market account, though this rule has become less strict since 2020.
- Interest rates on money market accounts vary by bank and change with the Federal Reserve rate, so comparing rates across banks before opening an account matters.
- Money market accounts are FDIC-insured up to $250,000, making them a lower-risk place to hold money you want to earn interest on.
- If you need unlimited check-writing and frequent withdrawals, a regular checking account is a better fit than a money market account.
How the withdrawal limit works and why it exists
Federal Reserve Regulation D originally capped withdrawals and transfers on money market accounts at six per month. Banks enforced this strictly, charging fees or closing accounts if you exceeded the limit. In 2020, the Federal Reserve suspended this rule, and most banks removed the limit or raised it significantly.
Today, the withdrawal limit depends on your bank. Some have removed it entirely. Others allow unlimited in-person or ATM withdrawals but cap online or phone transfers at six per month. A few still enforce the original six-per-month limit across all withdrawal types. Before opening a money market account, call the bank or check their website to confirm their current policy, because this rule is not standardized.
The reason the limit existed in the first place: money market accounts are meant for money you want to earn interest on but may need to access quickly. The limit discouraged people from using them as everyday transaction accounts, which would defeat the purpose of paying interest.
Minimum balance requirements and fees
Most money market accounts require an opening deposit of $2,500 to $10,000. Some banks charge a monthly fee if your balance drops below the minimum, while others waive the fee if you maintain the balance. A few banks offer money market accounts with no minimum, though these typically pay lower interest rates.
Common fees include a monthly maintenance fee ($10 to $25 if your balance falls below the minimum), an overdraft fee (usually $25 to $35 per overdraft), and an excess withdrawal fee ($10 to $25 per withdrawal over the limit, if your bank still enforces one). Some banks also charge a fee to close the account within a certain timeframe, usually 90 days to one year.
Read the fee schedule before opening an account. A money market account that pays 4% interest but charges a $15 monthly fee can cost you money if your balance is small. The math only works in your favor if you keep a large enough balance that the interest earned exceeds the fees.
Interest rates and how they change
Money market account interest rates move with the Federal Reserve's benchmark rate. When the Fed raises rates, banks typically raise their money market rates within weeks. When the Fed cuts rates, money market rates fall just as quickly. This means the rate you see advertised today may not be the rate you earn six months from now.
Banks compete for deposits by offering different rates. At any given time, some banks pay 4.5% while others pay 3.8% on the same type of account. Online banks and credit unions often pay higher rates than brick-and-mortar banks because they have lower overhead costs. Checking rate-comparison websites like Bankrate, DepositAccounts, or your bank's own website shows current rates, but these change frequently.
The interest is usually compounded daily and deposited monthly. This means you earn interest on your interest, though the effect is small on most balances. A $10,000 balance earning 4% compounded daily grows to about $10,408 after one year, compared to $10,400 if interest were not compounded.
When a money market account makes sense for you
A money market account works best if you have $5,000 or more sitting in a regular checking account that earns no interest, and you do not need to withdraw that money frequently. If you keep $15,000 in a checking account earning 0.01% and move it to a money market account earning 4%, you earn an extra $600 per year with no additional effort.
Money market accounts are also useful if you want to separate your everyday spending money from your savings. You can keep your paycheck in a regular checking account for bills and groceries, and move extra money to a money market account where it earns interest but remains accessible if you need it.
A money market account is not the right choice if you need unlimited check-writing, frequent transfers, or a low minimum balance. For those situations, a regular checking account is simpler and often free. A money market account is also not ideal if you are saving for a long-term goal like retirement, because a dedicated savings account or investment account may offer better returns.
Money market accounts versus money market funds
Do not confuse a money market account (a bank product) with a money market fund (an investment product). A money market account is a bank deposit account insured by the FDIC. A money market fund is a mutual fund that invests in short-term debt, and it is not FDIC-insured. If the fund's investments lose value, your money can lose value too.
Money market funds sometimes pay higher interest rates than money market accounts, but they carry investment risk. Money market accounts are safer but typically pay lower rates. For most people, a money market account is the simpler and lower-risk choice if you want a place to earn interest on money you may need soon.
How to open a money market account
Most banks let you open a money market account online, by phone, or in person. You will need a government-issued ID, your Social Security number, and proof of address (a utility bill or lease). The bank will run a background check through ChexSystems, a database that tracks banking history. If you have unpaid overdrafts or closed accounts in bad standing, some banks may deny you.
After you open the account, you can fund it by transferring money from another bank account, depositing a check, or making an ACH transfer. Most banks waive the initial deposit requirement if you set up a direct deposit from your employer, though this varies.
Once the account is open, you will receive a debit card and checks in the mail within 7 to 10 business days. You can start earning interest immediately, even before the physical cards arrive.
Frequently Asked Questions
Can I use a money market account as my main checking account?
Technically yes, but it is not ideal. If your bank limits withdrawals to six per month, you could hit that limit quickly if you use the account for everyday spending. A regular checking account is designed for frequent transactions and usually has no withdrawal limits or monthly fees.
What happens if my balance drops below the minimum?
Most banks charge a monthly fee ($10 to $25) if your balance falls below the minimum. Some waive the fee if you bring the balance back above the minimum within a certain timeframe. A few banks close the account if the balance stays below the minimum for too long. Check your bank's policy before opening the account.
Is my money safe in a money market account?
Yes, if the account is at an FDIC-insured bank. Your deposits are protected up to $250,000. If the bank fails, the FDIC will return your money. Credit unions offer similar protection through the NCUA up to $250,000.
Can I withdraw money whenever I want?
It depends on your bank. Some have removed withdrawal limits entirely. Others limit online or phone transfers to six per month but allow unlimited ATM or in-person withdrawals. Call your bank or check their website to confirm their current policy.
How do I compare money market accounts across banks?
Use a rate-comparison website like Bankrate or DepositAccounts to see current rates and minimum balances. Then read the fee schedule on each bank's website to understand what you will actually pay. Calculate the annual interest minus the annual fees to see which account comes out ahead.