A money market account is a hybrid between a savings account and a checking account
A money market account (often called an MMA) combines features of both a savings account and a checking account. Like a savings account, it pays you interest on the money you deposit. Like a checking account, it lets you write checks or use a debit card to withdraw money. The tradeoff is that banks limit how many withdrawals you can make each month — usually six — and they often require a higher opening deposit than a regular savings account.
The name comes from the money market, which is where banks themselves borrow and lend money for short periods. Banks pass some of that interest rate down to you. Because of this, money market accounts typically pay more interest than a regular savings account, though less than a certificate of deposit (CD), which locks your money away for a set time.
Money market accounts are FDIC insured at most banks, meaning your deposits are protected up to $250,000 if the bank fails. This makes them safer than keeping cash at home, but also means the bank can afford to pay you interest — they are lending your money out to other customers.
Key Takeaways
- Money market accounts pay interest like savings accounts but let you write checks or use a debit card like checking accounts.
- Banks usually limit you to six withdrawals per month, and many require a higher opening deposit than a regular savings account.
- Interest rates on money market accounts are higher than savings accounts but lower than certificates of deposit.
- Your deposits are protected by FDIC insurance up to $250,000 at most banks, making them a safe place to keep money you may need soon.
- Money market accounts work best for money you want to earn interest on but may need to access within a few months.
How the withdrawal limit works in practice
The six-withdrawal limit per month is a federal rule that applies to most savings and money market accounts. This includes withdrawals by check, debit card, electronic transfer, or ATM. It does not include deposits or withdrawals you make in person at a bank branch.
If you exceed six withdrawals in a month, the bank may charge you a fee for each extra withdrawal, or they may convert your account to a regular checking account. Some banks waive this limit during certain months or for certain account holders, so it is worth asking. The limit exists because banks use money market deposits to fund loans — they need to know roughly how much money will stay in the account.
This is why money market accounts work best for money you want to earn interest on but do not need to touch often. If you need to withdraw money multiple times a week, a regular checking account is a better fit, even if it pays little or no interest.
Interest rates and how they change
The interest rate a bank pays on a money market account is not fixed. It changes based on what the Federal Reserve does with its own interest rates. When the Federal Reserve raises rates, banks raise the rates they pay on savings and money market accounts. When the Federal Reserve lowers rates, banks lower what they pay you.
Banks also compete with each other. Online banks often pay higher rates than brick-and-mortar banks because they have lower costs. A money market account at an online bank might pay two or three times what the same account pays at a large national bank. The tradeoff is that you cannot walk into a branch — you manage everything by phone, email, or website.
Before opening a money market account, compare the interest rate at several banks. The difference between 0.01% and 4.5% annual interest is real money if you have $10,000 or more in the account. Also check whether the rate is may provide or whether it can drop at any time.
Opening deposit and minimum balance requirements
Most banks require a higher opening deposit for a money market account than for a regular savings account. This might be $1,000, $2,500, $10,000, or more depending on the bank. Some banks also require you to keep a minimum balance in the account at all times — if your balance drops below that amount, they may charge a monthly fee or close the account.
Online banks and credit unions often have lower opening deposits and minimum balances than large national banks. If you do not have $10,000 to open an account, it is worth checking a few smaller institutions before assuming you cannot open a money market account.
Read the account agreement carefully before you open the account. The agreement will tell you the opening deposit, the minimum balance, what fees explore, and what happens if you go below the minimum.
Money market accounts versus other savings options
A savings account lets you make unlimited deposits and withdrawals, but pays less interest than a money market account. Use a savings account if you need to access your money frequently or if you do not have enough to meet a money market account's opening deposit.
A certificate of deposit (CD) locks your money away for a set time — usually three months to five years — and pays higher interest than a money market account. The catch is that if you withdraw the money before the time is up, you pay a penalty. Use a CD if you know you will not need the money for a specific period.
A checking account lets you write checks and use a debit card freely, but pays little or no interest. Use a checking account for money you spend regularly. Many people keep a checking account for daily spending and a money market account or savings account for money they want to set aside.
When a money market account makes sense
A money market account works well if you have money you want to earn interest on but may need within the next few months to a year. Examples include an emergency fund, money saved for a car down payment, or money set aside for a vacation.
It also works if you want to keep some money separate from your checking account so you are less tempted to spend it, but you do not want to lock it away in a CD. The interest rate is higher than a savings account, and you can still access the money if you need it — you just have to plan ahead because of the six-withdrawal limit.
A money market account does not make sense if you need to withdraw money more than six times a month, or if you do not have enough to meet the opening deposit and minimum balance requirements. In those cases, a regular savings or checking account is a better fit.
Frequently Asked Questions
Can I use a debit card to withdraw money from a money market account?
Yes, most banks issue a debit card with a money market account. Each debit card withdrawal counts toward your six-withdrawal limit per month. If you need to withdraw money more often than that, ask your bank whether they offer a money market account with a higher withdrawal limit or no limit.
What happens if I go below the minimum balance?
Most banks charge a monthly fee if your balance drops below the required minimum. Some banks close the account if the balance stays low for too long. Check your account agreement to see what your bank does. If you are worried about going below the minimum, choose an account with a lower minimum or keep a small cushion above it.
Is my money safe in a money market account?
Yes, if the bank is FDIC insured. Your deposits are protected up to $250,000. Check the bank's website or ask a teller whether they are FDIC insured. Credit unions use a similar system called NCUA insurance. If you have more than $250,000, you can open accounts at multiple banks to keep all your money protected.
Can the bank change the interest rate whenever they want?
Yes. The interest rate on a money market account is not locked in like it is on a CD. Banks can raise or lower the rate at any time, though they usually give you notice. If rates drop and you want a better rate, you can move your money to a different bank.
Do I need a checking account if I have a money market account?
Most people keep both. A checking account is for money you spend regularly, and a money market account is for money you want to save and earn interest on. Some banks let you link them so you can transfer money between them easily.