A money market account is a hybrid savings product that sits between a regular savings account and a certificate of deposit
A money market account (MMA) is a deposit account offered by banks and credit unions that combines features of both checking and savings accounts. You can write checks or use a debit card to withdraw money, but the account pays interest on your balance—usually higher than a standard savings account. The tradeoff is that you typically need a larger opening deposit (often $2,500 to $25,000, though this varies by institution), and your withdrawals are limited by federal regulation.
The interest rate on a money market account is variable, meaning it changes based on what the Federal Reserve does with interest rates and what the bank decides to offer. When rates rise, your earnings go up. When rates fall, so does your rate. You are not locked into a fixed rate the way you are with a CD.
Money market accounts are FDIC-insured at banks and NCUA-insured at credit unions, up to $250,000 per account owner per institution. That means if the bank fails, your money is protected by the federal government.
Key Takeaways
- Money market accounts pay higher interest than regular savings accounts but require a larger minimum deposit, usually between $2,500 and $25,000.
- Federal law limits you to six withdrawals per month (though this rule is currently unenforced, banks can still impose their own limits).
- Interest rates are variable and move with Federal Reserve decisions, so your earnings change over time.
- Your deposits are insured up to $250,000 by the FDIC (at banks) or NCUA (at credit unions), protecting your principal if the institution fails.
- Money market accounts work best for money you want to keep accessible but do not need to touch frequently.
How the withdrawal limit works in practice
Federal Regulation D historically capped withdrawals at six per month, though this rule has been suspended since 2020 and remains unenforced. However, individual banks and credit unions can still set their own withdrawal limits, and many do. Some allow unlimited withdrawals; others enforce a six-withdrawal cap or charge a fee for withdrawals beyond a certain number.
The limit applies to transfers and withdrawals initiated by you—not to deposits or automatic payments the bank makes to you. If you exceed your bank's limit, you may face a fee (typically $25 to $35 per excess withdrawal) or the bank may convert your account to a regular savings account or close it entirely.
This makes money market accounts better suited to money you plan to leave alone for months at a time, rather than money you need to move around frequently. If you need to access your cash multiple times per month, a regular savings account or money market fund (a different product entirely) may be a better fit.
Interest rates and how they compare to other accounts
Money market account rates vary widely depending on the bank or credit union and the current interest rate environment. Online banks typically offer higher rates than brick-and-mortar banks because they have lower overhead costs. Rates also shift when the Federal Reserve changes its benchmark rate, though banks do not always pass the full change to customers immediately.
A regular savings account at a traditional bank might pay 0.01% to 0.05% annual percentage yield (APY). A money market account at the same bank might pay 4% to 5% APY (rates change constantly, so check current offers). A high-yield savings account at an online bank often pays similar rates to money market accounts—sometimes higher—without the withdrawal limits or large minimum deposit.
Certificates of deposit (CDs) typically pay more than money market accounts because you lock your money away for a fixed term (three months to five years). The tradeoff is that you cannot access the money without paying an early withdrawal penalty. Money market accounts give you the flexibility to withdraw when you need to, which is why the rate is lower.
Minimum deposits and monthly fees
Most banks require an opening deposit of $2,500 to $25,000 to open a money market account, though some online banks have lower minimums or none at all. Some institutions also require you to maintain a minimum balance to avoid a monthly fee—if your balance drops below that threshold, you may be charged $10 to $25 per month.
Read the account agreement carefully before opening. The fee structure matters more than the advertised interest rate if you cannot maintain the minimum balance. A 5% rate on an account with a $25 monthly fee is worse than a 4.5% rate on an account with no fee if your balance is modest.
Some banks waive the minimum deposit or monthly fee if you set up direct deposit or maintain a linked checking account with them. Ask about these options when you shop around.
When a money market account makes sense
Money market accounts work well for an emergency fund or money you want to keep safe and earning interest but do not plan to touch often. If you have $10,000 to $50,000 sitting in a regular savings account earning almost nothing, moving it to a money market account can earn you hundreds of dollars per year in interest.
They also suit people who want the safety of FDIC insurance and the simplicity of a bank account but want better returns than a savings account offers. You avoid the complexity of investing in stocks or bonds, and you keep your money liquid—you can access it within a few business days if you need it.
Money market accounts are less useful if you need to move money frequently, if you have a small balance (under $2,500), or if you are comparing them to a high-yield savings account that offers similar rates without withdrawal limits. In those cases, a regular savings account or high-yield savings account may serve you better.
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 sound similar but work very differently.
A money market account is a deposit account at a bank or credit union. Your money is insured by the FDIC or NCUA, and you earn a set interest rate. A money market fund is a mutual fund that invests in short-term debt securities like Treasury bills and commercial paper. It is not insured by the FDIC, and its value can fluctuate slightly, though the fluctuation is usually tiny. Money market funds are offered through brokerages and investment firms, not banks.
Money market funds typically pay higher yields than money market accounts, but they carry slightly more risk because they are not government-insured. For most people keeping an emergency fund or short-term savings, a money market account is the safer choice.
How to open and manage a money market account
Opening a money market account takes 10 to 15 minutes online or in person. You will need a government-issued ID, your Social Security number, and proof of address (a utility bill or bank statement). You will also need to fund the account with your opening deposit, which you can do by transferring money from another bank account or depositing a check.
Once the account is open, you can monitor your balance and interest earnings through the bank's website or mobile app. Most banks send you a debit card and checks so you can withdraw money. Keep track of how many withdrawals you make each month to stay within your bank's limits and avoid fees.
If interest rates rise significantly, you can shop around for a better rate at another bank and transfer your money. There is no penalty for closing a money market account and moving your funds elsewhere, unlike a CD. Just make sure the new bank does not have a long processing time for transfers, or you may miss out on a few days of interest.
Frequently Asked Questions
Can I use a money market account like a checking account?
Partially. Most money market accounts come with a debit card and checks, so you can withdraw money and pay bills. However, federal rules (currently unenforced but still enforced by individual banks) limit withdrawals to six per month. If you need to make many transactions, a checking account is better suited.
What happens to my money market account if the bank fails?
Your deposits are protected up to $250,000 by the FDIC (at banks) or NCUA (at credit unions). If the bank fails, the FDIC takes over and transfers your account to another bank or pays you directly. Your money is safe.
Do I pay taxes on money market account interest?
Yes. Interest earned on a money market account 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 report that on your tax return.
Is a money market account better than a high-yield savings account?
Not necessarily. High-yield savings accounts often pay the same or higher rates and have no withdrawal limits. The main advantage of a money market account is the ability to write checks, which some people find useful. Compare rates and features at different banks to see which works for you.
What is the minimum balance I need to open a money market account?
Most banks require $2,500 to $25,000, but this varies. Some online banks have lower minimums or none at all. Check the specific bank's requirements before you apply.