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 earn interest on your balance—usually higher than a standard savings account—but you can write checks or make transfers, though with limits. The tradeoff is that banks require a higher minimum balance to open one, and they restrict how many withdrawals you can make per month.
The account is called "money market" because banks use your deposited funds to invest in short-term, low-risk securities like Treasury bills and commercial paper. That's why they can pay you more interest than a regular savings account: they're earning returns on your money. You don't see those investments—you just see the interest rate they pass along to you.
Money market accounts are FDIC-insured (at banks) or NCUA-insured (at credit unions) up to $250,000 per depositor, per institution. That means if the bank fails, your money is protected by federal insurance. This makes them safer than investing directly in stocks or bonds, but also means the interest rate is lower than what you'd earn from riskier investments.
Key Takeaways
- Money market accounts pay higher interest than savings accounts but require a minimum deposit that typically ranges from $2,500 to $25,000 depending on the bank.
- You can withdraw money through checks, debit cards, or transfers, but federal rules limit you to six withdrawals per month—exceeding this limit may result in fees or account closure.
- Interest rates on money market accounts fluctuate with market conditions and vary widely between banks, so comparing rates across institutions matters.
- Your deposits are federally insured up to $250,000, making this a low-risk place to hold cash you may need within a year or two.
How interest rates and minimum balances work
Banks set their own interest rates on money market accounts, and those rates change frequently—sometimes weekly. The rate you receive often depends on your balance: a higher balance may earn a higher rate, or you may earn one rate on the first $10,000 and a different rate on anything above that. Before opening an account, ask the bank for their current rate schedule in writing, because rates advertised online can change by the time you deposit money.
Minimum balance requirements vary widely. Some banks require $2,500 to open; others ask for $10,000 or $25,000. If your balance drops below the minimum, the bank may charge a monthly fee (typically $10 to $25), lower your interest rate, or close the account. A few banks offer no-minimum money market accounts, but these usually pay lower interest rates to compensate.
Interest compounds daily or monthly depending on the bank's terms. Compounding means the bank pays interest on your interest, so your balance grows faster than with simple interest. Over time, this difference adds up—especially if you leave the money untouched for years. For example, a $10,000 deposit earning 4.5% compounded daily will grow faster than the same deposit earning 4.5% compounded monthly, though the difference is small in the short term.
Withdrawal limits and how they affect your account
Federal Regulation D limits you to six withdrawals or transfers per month from a money market account. This includes checks you write, debit card transactions, ACH transfers, and wire transfers. Deposits and ATM withdrawals don't count toward the limit. The rule exists because money market accounts are classified as savings products, not transaction accounts, so banks are required to restrict access.
If you exceed six withdrawals in a month, the bank can charge a fee (usually $10 to $25 per excess withdrawal), convert your account to a regular checking account (which may pay no interest), or close the account. Some banks enforce this strictly; others are more lenient. Before opening an account, ask the bank how they handle excess withdrawals and whether they'll notify you when you're approaching the limit.
This withdrawal limit makes money market accounts better suited for money you don't need to touch often—an emergency fund you'll access a few times a year, or savings for a goal six months or a year away. If you need to make frequent transfers, a regular savings account or checking account is a better fit.
Money market accounts versus savings accounts and CDs
| Feature | Money Market Account | Regular Savings Account | Certificate of Deposit (CD) |
|---|---|---|---|
| Interest rate | Higher than savings, lower than CDs | Lowest of the three | Highest, locked in for term |
| Minimum balance | $2,500–$25,000 | $0–$500 | $500–$2,500 |
| Access to money | 6 withdrawals/month limit | Unlimited withdrawals | Locked until maturity; early withdrawal penalty |
| Best for | Emergency fund, short-term savings | Frequent access, low minimums | Money you won't need for 3 months to 5 years |
A money market account makes sense if you have a lump sum to deposit, want better interest than a savings account, and don't need to withdraw money more than six times a month. If you need unlimited access, a regular savings account is simpler. If you're willing to lock money away for a set period—say, one year or three years—a CD typically pays more interest because the bank knows exactly how long it can use your money.
The choice depends on your timeline and how often you expect to touch the money. If you're saving for something specific that will happen in six to eighteen months, a money market account is a reasonable middle ground. If you might need the money sooner or more frequently, the withdrawal restrictions will cost you more in fees than you'll gain in interest.
Fees to watch for
Beyond excess withdrawal fees, money market accounts can charge monthly maintenance fees ($5 to $15), fees for falling below the minimum balance, fees for closing the account early, and fees for wire transfers or stop payments. Some banks waive monthly fees if you maintain a high balance or set up direct deposit. Read the fee schedule before you open the account, because fees can eat into your interest earnings.
If you earn $50 in interest per year but pay $120 in fees, you've lost money. Compare the interest rate, minimum balance requirement, and fee structure across at least three banks before deciding. Online banks often have lower fees and higher rates than brick-and-mortar banks because they have fewer physical locations to maintain. Calculate your actual net earnings—interest minus fees—rather than focusing on the advertised rate alone.
How to choose a money market account
Start by comparing rates on sites like Bankrate, DepositAccounts, or the banks' own websites. Write down the interest rate, minimum balance, monthly fee, and excess withdrawal fee for each account you're considering. Then calculate the net benefit: if you're depositing $10,000, how much interest will you earn in a year, and how much will fees cost? The account with the highest net benefit is your best choice.
Check whether the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions). You can verify this on the FDIC or NCUA website by searching the bank's name. If you have more than $250,000 to deposit, you can split it across multiple banks to keep the full amount insured. Also confirm that the bank offers the features you need—debit card access, check-writing, or online transfers—before you commit.
Consider whether you'll actually stay within the six-withdrawal limit. If you think you'll need more access, a regular savings account will cost you less in fees and frustration, even if the interest rate is lower. Money market accounts are a tool for a specific situation—not the right choice for every saver.
Frequently Asked Questions
Can I use a debit card to withdraw from a money market account?
Yes, but each debit card transaction counts toward your six-withdrawal limit. Some banks issue debit cards for money market accounts; others don't. Ask before opening the account if you want debit card access. ATM withdrawals at your bank's ATMs usually don't count toward the limit, but ATM withdrawals at other banks' machines may, depending on the bank's policy.
What happens if I go over six withdrawals in a month?
The bank can charge a fee per excess withdrawal (typically $10 to $25), convert your account to a checking account (ending the interest), or close the account. Policies vary by bank. Some enforce the limit strictly; others allow occasional overages. Ask your bank what their specific policy is before you open the account so you know what to expect.
Is a money market account safe if the bank fails?
Yes. Money market accounts at FDIC-insured banks are protected up to $250,000 per depositor. If the bank fails, the FDIC will reimburse you. Credit union money market accounts are protected by the NCUA up to the same limit. You can verify a bank's FDIC status on the FDIC website.
Can the interest rate on a money market account change?
Yes. Banks can change rates at any time, and they often do weekly or monthly based on market conditions. Your rate may go up or down. Some banks may provide a rate for a set period (like three months), but most don't. Check your account statements to see if your rate has changed.
Should I open a money market account or a CD?
Open a money market account if you might need the money within the next year or two. Open a CD if you're certain you won't need the money for a specific period—say, three years—because CDs usually pay higher interest in exchange for locking your money away. If you need frequent access, neither is ideal; use a regular savings account instead.