A money market account is an interest-bearing savings account that offers some of the benefits of a checking account. Like any other deposit account, it’s insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 if your bank or credit union were to fail.
With money market accounts, you can often earn higher interest rates than with most checking and savings accounts. They may come with a debit card (to make purchases or ATM withdrawals) and limited check-writing privileges. For this reason, they’re often considered hybrids between savings accounts and checking accounts.
The downsides are that you may need to pony up for a high opening deposit (sometimes as high as $2,500, as in the case of Discover) or a high minimum monthly balance, depending on the bank or credit union. If you don’t maintain the required minimum balance, you may have to pay monthly fees. A lot of banks nowadays – particularly online banks – are eliminating these fees altogether, but some are holding onto them. Make sure to read the fine print of any account you open.
Similar to savings accounts, you’re also subject to limitations on the number of withdrawals and transfers you can make in a month. Per a federal law called Regulation D, you may make up to six per month. Otherwise, the bank may charge you a fee for “excessive transfers.”
For more info, you can check out our full review of the best money market accounts.
Money market accounts and savings accounts are similar in that they both allow you to earn high-interest rates (at least compared to a checking account). The interest rate tends to be higher for money market accounts, though the tradeoff is that they may require high opening deposits or minimum account balances. Both will limit the number of monthly withdrawals and transfers you make to six, per federal law, but many money market accounts offer check-writing and debit card privileges, unlike savings accounts.
A money market account will always offer you interest, but that feature is optional when it comes to checking accounts. Another main difference is fluidity. With checking accounts, you can freely make purchases with a debit card, write checks, and initiate online transfers. With money market accounts, you may get a debit card too, but you’re limited to six withdrawals or transfers per month.
Money market accounts and certificates of deposit (CDs) both tend to offer higher interest rates than you would find with a checking account or savings account. However, CDs are fixed-term – meaning that you receive that rate in exchange for keeping your cash locked in an account until the term length is over. If you make an early withdrawal, you will be hit with a penalty that would eat into the earned interest and perhaps even the principal. Money market accounts, on the other hand, are a hybrid of checking and savings accounts, allowing you to receive interest along with check-writing and debit card privileges (depending on the bank).
Who should use money market accounts?
You might benefit from a money market account if:
- You want your cash to earn interest but also want more liquidity than a checking account
- You need the ability to write checks
- You can provide the cash required for the higher minimum deposit and account balance that a money market account may require
- You don’t want to lock up your funds in a fixed-term CD
- You like the security of an FDIC- or NCUA-insured account
Money market accounts are best for:
- Emergency funds
- Wedding expenses
- Vacations funds
- Expected quarterly tax payments
- Savings while you’re in retirement
- Infrequent expenses
- Planned expenses
Money market accounts should not be used for:
- Unlimited check-writing
- Frequent transfers, including ACH bill payments and transactions initiated by mobile payment apps
- The bulk of your retirement savings before retirement
How many withdrawals and transfers am I limited to?
Per Regulation D, a rule from the Federal Reserve Board, you are limited to six “convenient” withdrawals or transfers per month from a money market account. This includes transfers initiated by mobile payment apps (like Venmo and Zelle), transfers between accounts at the same bank or different banks, checks, overdraft protection transfers, and ACH bill payments. However, it doesn’t include cash deposits made into the account or transactions made at an ATM or bank.
If you go beyond the allotted six, you may receive a fine for “excessive transfers,” usually about $5 to $10. You can avoid this fine by bundling transactions, setting up recurring payments with your checking account instead of your money market account, and never overdrafting (as that could trigger an automatic transfer).
Can I withdraw cash from a money market account at an ATM?
Yes. With money market accounts, banks typically give you a bank or ATM card that allows you to use ATMs. In many cases, you may receive a debit card instead, which offers ATM and purchasing power at most stores.
Can I lose money on a money market account?
It depends. A money market account is not an investment account. The interest rate you receive on a money market account means guaranteed earnings, though that rate is liable to change at any time based on market conditions.
However, you can lose money in fees. Banks can charge fees for any number of things, including overdrafting, replacement debit cards, excessive withdrawals (no more than six per month), not maintaining minimum balances, and checks. Many online banks have eliminated the most common fees to attract new customers, but this will differ depending on what institution you go with. At the very least, we recommend going with a bank that does not charge a monthly maintenance fee.
What’s the average minimum balance for a money market account?
This will differ on the bank. The way it typically works is that banks charge monthly fees to have the account, and they’ll only waive it if you maintain a high balance, set up direct deposit, or follow through on another action. For example, SunTrust Bank will charge you $17 a month for a money market account and will waive the fee if you either set up a $100 minimum automatic monthly transfer or keep $10,000 in the account every day. This is the case for many brick-and-mortar banks when it comes to money market accounts, savings accounts, and checking accounts.
If you want an account that doesn’t charge such fees, check out our review of the top money market accounts. Five of the six picks do not require a minimum account balance or charge monthly maintenance fees.
How do you shop for a money market account?
Below are tips for you to find the best money market account for your needs.
- Look for interest-bearing accounts with rates higher than checking and savings accounts
- Avoid accounts that charge monthly maintenance fees or require high account balances
- Consider online banks, which are offering the highest interest rates of any banks nowadays
- Check if debit cards or checks are offered with the account