What a money market account is
A money market account is a savings account that pays interest, usually higher than a regular savings account, in exchange for keeping a larger balance and limiting how often you withdraw. You deposit money, the bank pays you interest on that balance, and you can withdraw when you need it—but most accounts let you make only three to six withdrawals per month before charging a fee.
The account sits between a regular savings account and a certificate of deposit (CD). It is not an investment account; your money stays in the bank, and the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account owner per bank. The tradeoff is that the interest rate changes with the market, so what you earn this month may not be what you earn next month.
Key Takeaways
- Money market accounts pay higher interest than regular savings accounts but require a larger opening deposit, often $2,500 to $25,000 depending on the bank.
- Most accounts limit you to three to six withdrawals per month; exceeding that limit triggers a fee, usually $25 to $35 per extra withdrawal.
- The interest rate is variable, meaning it moves up or down based on what the Federal Reserve does, so your earnings are not locked in.
- Your deposits are FDIC-insured up to $250,000, so your principal is protected even if the bank fails.
- You can access your money faster than with a CD, but you earn less interest than you would if you locked money away for a set term.
How the interest rate works
Money market accounts offer a variable rate, which means the bank can change what it pays you whenever it wants. Most banks tie their rates to what the Federal Reserve does. When the Fed raises its benchmark rate, banks usually raise the rates they pay on savings accounts. When the Fed cuts rates, banks cut what they pay you.
The rate you see advertised today is not a promise. It is the current rate, and it can drop tomorrow. Some banks move slowly and do not cut rates right away when the Fed cuts; others cut immediately. If you want to know whether your rate is competitive, check what other banks are offering the same week you are comparing.
The interest compounds, usually daily or monthly, which means you earn interest on your interest. If you have $10,000 in the account and it earns 4.5% annual percentage yield (APY), you will earn roughly $450 in the first year, but the exact amount depends on how often the bank compounds and whether you add or withdraw money during the year.
Minimum balance requirements and fees
Most banks require an opening deposit between $2,500 and $25,000 to open a money market account. Some online banks have lower minimums, sometimes as low as $1. If your balance falls below the minimum, the bank may charge a monthly fee (usually $10 to $25) or close the account.
The withdrawal limit is where most people run into trouble. Federal rules used to cap withdrawals at six per month, but that rule was removed in 2020. Now banks set their own limits, typically three to six per month. If you exceed the limit, you pay a fee per extra withdrawal—usually $25 to $35. Some banks waive the fee for the first violation in a year; others charge every time.
Watch for other fees: monthly maintenance fees (usually $5 to $15 if your balance is too low), overdraft fees if you withdraw more than you have, and wire transfer fees if you move money out by wire. Read the fee schedule before you open the account.
When a money market account makes sense
A money market account works well if you have money you want to keep safe and earning interest, but you might need to access it within a year or two. It is better than a regular savings account because the interest rate is higher. It is better than a CD because you are not locked in—you can withdraw without penalty, though you may hit the withdrawal limit.
Use it for an emergency fund, money you are saving for a down payment in the next year or two, or cash you want to keep separate from your checking account but still accessible. Do not use it as a checking account; the withdrawal limit will frustrate you and cost you in fees.
If you have money you will not need for three years or longer, a CD usually pays more because you lock in a higher rate. If you need to make frequent withdrawals, a regular savings account or money market checking account (which has no withdrawal limit but pays less interest) is a better fit.
Money market accounts versus other savings options
| Account Type | Interest Rate | Minimum Deposit | Withdrawal Limit | Best For |
|---|---|---|---|---|
| Regular Savings Account | 0.01% to 0.5% APY | $0 to $500 | None | Easy access, frequent withdrawals |
| Money Market Account | 4% to 5.5% APY (varies) | $2,500 to $25,000 | 3 to 6 per month | Higher interest, limited access |
| Certificate of Deposit (CD) | 4.5% to 5.5% APY (varies) | $500 to $2,500 | None (but early withdrawal penalty) | Locked-in rate, longer time horizon |
| Money Market Checking | 0.5% to 2% APY | $1,000 to $10,000 | None | Frequent access, some interest |
How to open and manage a money market account
Open a money market account at a bank or credit union by providing your name, address, Social Security number, and initial deposit. Most banks let you open online in 10 to 15 minutes. You will need to link a checking account or provide a debit card to fund the initial deposit.
Once the account is open, monitor your balance and withdrawal count. Many banks show your remaining withdrawals in their app or online portal. If you are close to the limit and need to withdraw, call the bank first—some will waive the fee if you ask, or they may let you move money to your checking account instead of withdrawing directly from the money market account.
Check your interest rate every few months. If your bank's rate drops significantly below what competitors are offering, consider moving your money to a higher-paying account. Switching takes a few days, and you will not lose interest on the money already earned.
Frequently Asked Questions
Can I use a money market account like a checking account?
Technically yes, but you will hit the withdrawal limit quickly and pay fees. Money market accounts are designed for money you want to keep separate and access occasionally, not for daily spending. Use a checking account for regular bills and purchases.
What happens if I exceed the withdrawal limit?
The bank charges a fee per extra withdrawal, usually $25 to $35. Some banks waive the first fee in a year; others charge every time. A few banks will close the account if you repeatedly exceed the limit. Check your bank's policy before opening.
Is my money safe in a money market account?
Yes, as long as your bank is FDIC-insured and your balance stays under $250,000. The FDIC protects your deposit even if the bank fails. If you have more than $250,000, open accounts at different banks to keep each under the insurance limit.
Will my interest rate stay the same?
No. Money market rates are variable, which means the bank can change what it pays whenever it wants. Most banks follow the Federal Reserve's rate changes, but some move faster than others. Check your rate quarterly to see if it is still competitive.
Can I withdraw money without paying a fee?
Yes, as long as you stay within your withdrawal limit—usually three to six per month. Each withdrawal within the limit is free. Withdrawals beyond that limit trigger a fee. Some banks count transfers to your checking account as withdrawals; others do not. Ask your bank which transactions count toward the limit.