What a money market account is and how it differs from a regular savings account
A money market account is a hybrid between a savings account and a checking account. You earn interest on your balance—usually higher than a regular savings account—but you can write checks or use a debit card to withdraw money, though often with limits on how many times per month you can do so.
The key difference from a regular savings account is access. A savings account is designed for money you're setting aside and not touching often. A money market account assumes you might need to reach your cash quickly, so the bank gives you more withdrawal options in exchange for accepting a lower interest rate than you'd get from a certificate of deposit (CD) or money market fund.
Money market accounts are FDIC-insured up to $250,000 per depositor per bank, the same as regular savings accounts. Your money is protected if the bank fails.
Key Takeaways
- Money market accounts pay interest higher than regular savings but lower than CDs, and let you write checks or use a debit card to access your money.
- Most banks limit you to six withdrawals per month (or per statement cycle) before charging a fee, so these accounts work best for money you might need but don't access constantly.
- Interest rates on money market accounts change with the federal funds rate, so your earnings rise and fall based on what the Federal Reserve does, not on what the bank decides.
- You need a minimum opening deposit to start a money market account, which varies by bank—some require $2,500, others $10,000 or more.
- Money market accounts are FDIC-insured, so your balance is protected up to $250,000 if the bank fails.
How interest rates and withdrawal limits work
The interest rate on a money market account is variable, meaning it changes. Banks set their rates based on the federal funds rate—the interest rate the Federal Reserve charges banks to lend to each other overnight. When the Fed raises rates, banks raise money market rates. When the Fed cuts rates, banks cut them too. This happens with a lag of a few weeks to a few months.
The withdrawal limit is usually six per month or per statement cycle, though some banks allow unlimited withdrawals at the ATM or in person and count only checks and transfers as "withdrawals" for the limit. If you exceed the limit, the bank charges a fee—typically $10 to $25 per excess withdrawal. Some banks will waive the fee if you ask, especially if you've been a customer for years and it's your first violation.
The interest compounds daily or monthly, depending on the bank. Daily compounding means you earn interest on your interest more often, so your balance grows slightly faster. The difference is small on balances under $50,000, but it adds up on larger sums.
When a money market account makes sense for your money
A money market account works best if you have money you want to keep safe and earning interest, but you know you might need to touch it within the next year or two. Examples: an emergency fund you're building up, money you're saving for a down payment on a house, or a buffer for business cash flow.
It does not work well if you need to make frequent withdrawals—more than six per month—because you'll hit the withdrawal limit and pay fees. In that case, a regular checking account (which has no withdrawal limit) is cheaper, even though it pays little or no interest.
It also does not work well if you can lock your money away for a year or longer. A CD pays more interest than a money market account because you agree not to touch the money. If you're certain you won't need the cash for 12 months, a CD is the better choice.
Minimum deposits and account opening requirements
Most banks require a minimum opening deposit to start a money market account. This ranges from $500 at some online banks to $10,000 or more at large national banks. A few banks have no minimum, but they typically pay lower interest rates to offset the risk.
To open an account, you'll need a government-issued ID, your Social Security number, and proof of address (a utility bill or lease). You can open an account online, by phone, or in person. Online opening usually takes 5 to 10 minutes. In-person opening at a branch takes 15 to 30 minutes.
Some banks will waive the minimum deposit if you set up automatic transfers from another account or if you have a certain amount in other accounts with them. Ask the bank whether they offer this before you decide you can't afford to open the account.
How to compare money market accounts across banks
The interest rate is not the only thing that matters. Compare these four things side by side: the current interest rate, the minimum opening deposit, the monthly withdrawal limit, and the monthly fee (if any).
Interest rates change constantly, so a rate that's high today may not be high next month. Look at the annual percentage yield (APY), which accounts for compounding and tells you the true annual return. A bank advertising "5.00% APY" will give you more money than one advertising "4.95% APY," all else equal.
Online banks usually offer higher rates than brick-and-mortar banks because they have lower overhead costs. The tradeoff is that you can't walk into a branch to deposit cash or speak to someone face-to-face. If you need in-person service, a local or regional bank may be worth the lower rate.
What happens if you exceed the withdrawal limit
If you make more than six withdrawals in a month, the bank charges a fee for each excess withdrawal. The fee is usually $10 to $25. Some banks will charge the fee automatically; others will send you a notice first and give you a chance to explain or dispute it.
If you repeatedly exceed the limit, the bank may close your account or convert it to a checking account. This is rare, but it can happen if you're treating the money market account like a checking account and ignoring the withdrawal rules.
If you're charged a fee you think is unfair, call the bank and ask them to waive it. Many banks will do so once, especially if you've been a customer for a while. If they refuse, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or your state's banking regulator.
Moving money in and out: transfers, deposits, and withdrawals
You can fund a money market account by transferring money from another bank account, depositing a check, or depositing cash in person. Transfers from another bank usually take 1 to 3 business days. Checks take 5 to 7 business days to clear. Cash deposits are available immediately if you deposit at a branch.
To withdraw money, you can write a check, use the debit card the bank issues, make an ATM withdrawal, or request a transfer to another account. Checks and transfers count toward your six-withdrawal limit. ATM withdrawals may or may not, depending on the bank—read the fine print when you open the account.
If you need to withdraw a large sum quickly—say, $10,000 for a down payment—call the bank a day or two ahead and let them know. Most banks keep enough cash on hand, but a heads-up ensures they won't have to order it from a vault.
Frequently Asked Questions
Can I lose money in a money market account?
No. Money market accounts are FDIC-insured, so your balance is protected up to $250,000 even if the bank fails. The only way to lose money is if you make a mistake—for example, writing a check for more than you have and overdrawing the account. The bank will charge an overdraft fee, but your principal is safe.
Is a money market account the same as a money market fund?
No. A money market account is a bank product and is FDIC-insured. A money market fund is an investment product sold by brokerages and mutual fund companies, and it is not insured. Money market funds can lose value, though the risk is very low. For safety, a money market account is the better choice.
What happens to my interest rate if the Federal Reserve cuts rates?
Your interest rate will fall, usually within a few weeks to a few months. The bank will notify you of the change before it takes effect. If rates drop significantly and you're unhappy with the new rate, you can move your money to another bank offering a higher rate. There's no penalty for closing a money market account.
Can I use a money market account as my main checking account?
Technically yes, but it's not a good idea. The six-withdrawal limit means you'll hit fees if you use it for everyday spending. A checking account with no withdrawal limit is cheaper and simpler for daily use. Use a money market account for savings, not for paying bills.
Do I have to pay taxes on money market account interest?
Yes. The interest you earn is taxable income. The bank will send you a 1099-INT form at the end of the year showing how much interest you earned, and you'll report that on your tax return. The interest is taxed at your ordinary income tax rate, not at the capital gains rate.