A money market account is a hybrid savings product that combines features of checking and savings accounts
A money market account (MMA) is a deposit account offered by banks and credit unions that pays interest on your balance and lets you write checks or make transfers, but with limits on how often you can withdraw. You deposit money, earn interest (usually higher than a regular savings account), and can access your funds through checks, debit cards, or transfers—though your bank will restrict the number of withdrawals you make each month.
The account sits between a traditional savings account and a checking account. Savings accounts pay interest but typically don't let you write checks. Checking accounts let you write unlimited checks but pay little or no interest. A money market account does both, but the bank controls how many times per month you can pull money out. In exchange for accepting those limits, you get a better interest rate than you'd earn in a regular savings account.
The interest rate on a money market account varies by bank and changes over time as the Federal Reserve adjusts its benchmark rates. Some banks offer tiered rates—meaning the more money you deposit, the higher your interest rate. Others offer a flat rate for all balances. Your money is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per bank, so your principal is protected if the bank fails.
Key Takeaways
- Money market accounts pay interest on your balance and allow you to write checks or make transfers, but banks limit how many withdrawals you can make each month.
- Interest rates on money market accounts are higher than regular savings accounts but vary by bank and change as Federal Reserve rates move.
- Most banks impose a limit of six withdrawals per month (or statement cycle), and excess withdrawals may trigger fees or account closure.
- Your deposits are FDIC-insured up to $250,000, so your money is protected even if the bank fails.
- Money market accounts work best for money you want to earn interest on but may need to access occasionally, not for everyday spending.
How withdrawal limits work and what happens if you exceed them
Federal Reserve Regulation D historically capped withdrawals from money market accounts at six per month. In 2020, that rule was suspended, and banks were no longer required to enforce a six-withdrawal limit. However, most banks have kept withdrawal limits in place anyway—some still use six per month, others allow more, and a few have removed the limit entirely.
When you exceed your bank's withdrawal limit, one of three things typically happens: the bank charges a fee (usually $10 to $25 per excess withdrawal), the account is converted to a regular checking account (which may pay lower or no interest), or the bank closes the account. Check your account agreement or call your bank to learn what limit applies to your account and what the penalty is for going over.
Withdrawals include checks you write, transfers you initiate to another account, debit card transactions, and ATM withdrawals. Some banks count phone or online transfers but not ATM withdrawals, so the rules vary. Deposits and transfers into the account do not count against your limit—only money going out.
Interest rates and how they compare to other accounts
Money market accounts typically pay 4% to 5% annual percentage yield (APY) as of early 2024, though this varies by bank and changes frequently. The rate depends on the Federal Reserve's current benchmark rate and your bank's decision about how much of that rate to pass along to customers. Banks with lower overhead costs (online-only banks) often pay higher rates than brick-and-mortar banks.
A regular savings account at the same bank usually pays 0.5% to 2% APY. A high-yield savings account (also online-based) may pay 4% to 5%, similar to a money market account. A traditional checking account pays 0% to 0.5%. A certificate of deposit (CD) locks your money away for a set term (three months to five years) but often pays a higher rate than a money market account because you cannot withdraw early without penalty.
The tradeoff is access: a money market account lets you withdraw money when you need it (within your monthly limit), while a CD does not. If you need the money before the CD matures, you pay an early withdrawal penalty that can wipe out your interest earnings. For money you might need within the next year or two, a money market account usually makes more sense than a CD.
Minimum balance requirements and fees
Most banks require a minimum opening deposit to start a money market account, typically $1,000 to $10,000, though some banks have no minimum. Many also require you to maintain a minimum balance—if your balance drops below that threshold, the bank may charge a monthly fee (usually $10 to $25) or close the account. A few banks waive the minimum balance if you set up automatic deposits or link the account to direct deposit.
Beyond the excess withdrawal fee, money market accounts may charge a monthly maintenance fee (if you fall below the minimum balance), an overdraft fee (if you write a check for more than your balance), or an inactivity fee (if you do not use the account for several months). Read the fee schedule before opening an account, and ask whether any fees are waived if you maintain a certain balance or set up direct deposit.
Some banks offer tiered interest rates based on your balance: for example, balances under $10,000 earn 3.5% APY, balances $10,000 to $50,000 earn 4.5% APY, and balances over $50,000 earn 5% APY. The higher your balance, the more interest you earn, but also the more you lose if the bank charges a monthly fee. Calculate whether the interest you earn outweighs the fees before committing.
Who should use a money market account and who should not
A money market account works well if you have money you want to earn interest on but may need to access within the next few months or a year. Examples: an emergency fund, money saved for a down payment on a car or house, or a buffer for irregular expenses like car repairs or medical bills. The higher interest rate means your money grows faster than it would in a regular savings account, and you can still get to it if something comes up.
A money market account is not ideal if you need to make frequent withdrawals (more than six per month). If you are constantly moving money in and out, you will hit the withdrawal limit and face fees or account closure. In that case, a regular checking account (which allows unlimited withdrawals) is a better fit, even though it pays little or no interest.
A money market account is also not the right choice if you have a very small amount to deposit (under $1,000) and the bank requires a high minimum balance, because the fees may eat up any interest you earn. And if you know you will not need the money for several years, a CD usually pays a higher rate and does not penalize you for leaving the money untouched.
How to open a money market account
To open a money market account, choose a bank or credit union, gather your identification (driver's license or passport), Social Security number, and proof of address (a recent utility bill or bank statement), and apply online, by phone, or in person. The bank will verify your identity and run a background check (usually through ChexSystems, a banking history database). If you have a history of overdrafts or fraud, the bank may deny your application.
Once approved, you fund the account with your opening deposit. You can transfer money from another bank account, mail a check, or deposit cash in person if the bank has a branch near you. The account is usually active within one to three business days, and you can start earning interest immediately.
Before you open an account, compare rates and fees across at least three banks. A bank offering 5% APY with no monthly fee is much better than one offering 4.5% APY with a $15 monthly maintenance fee. Use online banking sites like Bankrate or DepositAccounts to see current rates and filter by minimum balance and fees.
Money market accounts versus money market funds
Do not confuse a money market account (a bank deposit product) with a money market fund (an investment product). They have similar names but work very differently.
A money market account is a bank deposit account. Your money is FDIC-insured up to $250,000. You earn interest. You can withdraw your money anytime (within your monthly limit). The bank pays you a may provide rate of interest.
A money market fund is a mutual fund that invests in short-term debt securities (Treasury bills, commercial paper, and other low-risk bonds). Your money is not FDIC-insured. The value of your investment can go up or down slightly. You earn dividends based on the fund's performance, not a may provide rate. Money market funds are offered through investment brokers, not banks. They are used by investors who want a low-risk place to park cash temporarily, not by people looking for a savings account.
If your bank or broker is offering you a "money market account," it is almost certainly the bank deposit product, not the fund. But if you are shopping for investments, make sure you understand which one you are buying.
Frequently Asked Questions
Can I use a debit card with a money market account?
Some banks issue debit cards for money market accounts, but many do not. If your bank does issue one, debit card transactions count as withdrawals against your monthly limit. Check with your bank before opening an account if debit card access is important to you.
What happens if I write a check for more than my balance?
If you overdraw your money market account, the bank will either reject the check (and charge a returned-check fee) or pay it and charge you an overdraft fee, usually $25 to $35. Some banks offer overdraft protection, which links your money market account to a checking account or credit line so the bank can cover the shortfall automatically.
Can I move money from a money market account to another bank?
Yes. You can transfer money out to another bank account by initiating an ACH transfer (which takes one to three business days) or by writing a check. The transfer counts as a withdrawal against your monthly limit. If you need to move money frequently, a money market account may not be the right fit.
Do I pay taxes on money market account interest?
Yes. Interest earned on a money market account is taxable income. Your bank will send you a 1099-INT form at the end of the year showing how much interest you earned, and you report that on your tax return. The interest is taxed at your ordinary income tax rate, not at the capital gains rate.
Is a money market account safe if the bank fails?
Yes. The FDIC insures money market accounts up to $250,000 per depositor, per bank. If your bank fails, the FDIC will return your money (up to the limit) within a few business days. If you have more than $250,000, keep the excess at a different bank to ensure full coverage.