A money market account combines features of checking and savings accounts

A money market account (MMA) is a deposit account that pays interest on your balance and lets you write checks or make transfers, but with limits on how often you can withdraw. The account sits between a regular savings account and a checking account in how it works. You get the higher interest rate that savings accounts offer, but you also get some of the access that checking accounts provide.

The trade-off is that the bank restricts how many times per month you can move money out. Federal rules once capped this at six withdrawals per month, though that rule changed in 2020 and banks now set their own limits. Most still keep the restriction because it helps them manage their cash flow and offer you a better rate.

Money market accounts are FDIC-insured up to $250,000 per depositor per bank, the same as any other deposit account. The money is yours and protected if the bank fails.

Key Takeaways

  • Money market accounts pay interest rates higher than regular savings accounts, but lower than what you might find in a high-yield savings account at an online bank.
  • You can write checks or use a debit card on most money market accounts, but the bank limits how many withdrawals you can make each month.
  • The interest rate on a money market account changes with market conditions and varies widely between banks, so shopping around matters.
  • Money market accounts work best if you have money you do not need to touch often but want to access without penalty if you need it.

How the withdrawal limits actually work

When a bank says you can make six withdrawals per month, that usually means six times you can move money out of the account—by check, debit card, ACH transfer, or wire. Some banks count only certain types of withdrawal; others count all of them the same way. Read your account agreement to know which transactions your bank counts.

If you go over the limit, the bank may charge a fee per excess withdrawal, or it may convert your account to a regular savings account (which typically has no check-writing ability). A few banks will straightforward decline the transaction. The limit resets each calendar month, so if you hit six withdrawals in January, you start fresh in February.

In practice, this limit matters most if you treat the account like a checking account. If you use it as a place to park money and withdraw only when you need a larger sum, you will rarely hit the cap.

Interest rates and how they compare

Money market accounts at traditional banks typically pay 0.01% to 0.50% annual percentage yield (APY), depending on the bank and the current interest rate environment. Online banks and credit unions often pay higher rates—sometimes 4% to 5% APY when the Federal Reserve has raised rates. The difference between 0.10% and 4.50% on a $10,000 balance is roughly $440 per year, so the bank you choose matters.

The rate your bank offers depends on two things: what the Federal Reserve has set as its benchmark rate, and how much competition the bank faces for deposits. Banks in areas with many competitors tend to pay more. Online banks, which have lower overhead, often pay more than brick-and-mortar branches.

Your rate may be fixed for a set period or variable, meaning it can change. Banks usually notify you before a rate change, but read your account agreement to understand when and how your rate can move.

Money market accounts versus high-yield savings accounts

The main difference is access. A high-yield savings account usually has no withdrawal limits and no check-writing ability—you move money in and out by transfer or ACH only. A money market account lets you write checks and use a debit card, but limits how often you can withdraw. Both are FDIC-insured and both pay interest.

In terms of rate, they are often similar at the same bank. An online bank's high-yield savings account and money market account might both pay 4.50% APY. The choice comes down to whether you value the ability to write checks or the freedom to move money without limits.

If you need to access your money frequently, a high-yield savings account is simpler. If you want check-writing ability and do not mind the withdrawal cap, a money market account works well.

Money market accounts versus money market funds

Do not confuse a money market account with a money market fund. They have similar names but are completely different products. A money market account is a bank deposit account—FDIC-insured, with a may provide balance. A money market fund is an investment product sold by brokerages—not insured, and the value can go up or down.

Money market funds invest in short-term debt like Treasury bills and commercial paper. They are not appropriate if you need your money to be safe and may provide. Money market accounts are appropriate for that purpose.

When a money market account makes sense

A money market account works well if you have a sum of money—an emergency fund, a down payment you are saving for, a tax refund—that you want to earn interest on but might need to access. The higher rate beats a regular savings account. The check-writing and debit card access beat a high-yield savings account if you value that convenience.

It is less useful if you need to move money in and out constantly, or if you are comparing it to an online bank's high-yield savings account that pays the same rate with no withdrawal limits. It is also less useful if you have a very small balance, because the interest earned will be small regardless of the rate.

Money market accounts are common at traditional banks and credit unions, and less common at online banks (which tend to offer high-yield savings accounts instead). If you bank somewhere already, ask what they offer and what the current rate is.

Frequently Asked Questions

Can I use a money market account as my main checking account?

Technically yes, but it is not ideal. The withdrawal limit means you could hit a cap if you write many checks or make frequent transfers. Most people use a checking account for daily spending and a money market account for money they want to earn interest on but do not touch often.

What happens if I exceed the withdrawal limit?

The bank may charge a fee (usually $10 to $25 per excess withdrawal), or it may convert your account to a regular savings account with no check-writing ability. Some banks decline the transaction outright. Check your account agreement to know your bank's policy.

Is my money safe in a money market account?

Yes, if the account is at an FDIC-insured bank or a credit union with NCUA insurance. Your balance is protected up to $250,000 per depositor per institution. The money is not invested in the market—it is held as a deposit, just like in a checking or savings account.

Do I pay taxes on money market account interest?

Yes. The interest you earn is taxable income. The bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest, and you report it on your tax return.

Can the bank lower my interest rate whenever it wants?

If your rate is variable, yes—the bank can lower it. Most banks notify you before a rate change. If your rate is fixed, it stays the same for the period stated in your agreement. Either way, you can move your money to another bank if you do not like the new rate.