A money market account holds your cash and pays you interest that changes with the market

A money market account is a savings account that ties your interest rate to short-term interest rates in the broader economy. When the Federal Reserve raises rates, your account rate rises. When rates fall, so does yours. You can deposit and withdraw money, but the account comes with limits on how many times per month you can move money out—usually six withdrawals or transfers before fees kick in.

The account sits between a regular savings account and a money market fund. A savings account pays a fixed rate that the bank sets and changes when it wants. A money market fund invests your cash in short-term debt (Treasury bills, commercial paper) and passes the returns to you daily. A money market account is FDIC-insured like a savings account, but the rate moves with the market like a fund does.

The tradeoff is that you get a higher interest rate than a savings account, but you cannot withdraw money as freely. Most banks limit you to six outgoing transfers or withdrawals per month. After six, you either pay a fee per transaction or the bank closes the account.

Key Takeaways

  • Your interest rate on a money market account changes when the Federal Reserve changes its benchmark rate, usually moving within weeks.
  • You can withdraw cash and write checks from most money market accounts, but the bank limits you to six outgoing transactions per month before charging fees.
  • The account is FDIC-insured up to $250,000, so your principal is protected even if the bank fails.
  • Money market accounts pay more interest than savings accounts because banks can lend out your money at higher rates when market rates are high.

How the interest rate gets set and changes

Banks do not decide your money market rate in a vacuum. They watch the federal funds rate—the interest rate at which banks lend reserve balances to each other overnight. The Federal Reserve sets a target range for this rate (for example, 4.25% to 4.50%), and it changes roughly eight times per year when the Fed meets.

When the Fed raises the target rate, banks can charge more to lend money out, so they can afford to pay you more to keep your money in the account. When the Fed cuts rates, banks earn less on loans, so they cut what they pay you. The lag is usually one to three weeks—your bank will not change your rate the same day the Fed announces, but it will move within that window.

Your specific rate depends on your bank and how much money you have in the account. A large bank might pay 4.00% on balances under $100,000 and 4.10% on balances above that. An online bank with lower overhead might pay 4.50% across the board. You can compare current rates on bank websites or on rate-tracking sites, but the rate you see today will change when the Fed moves.

The six-transaction limit and what triggers it

Federal Regulation D, written decades ago for savings accounts, limits how many times per month you can move money out of a money market account. The limit is six outgoing transactions. An outgoing transaction is a withdrawal, a transfer to another account, a check you write, or a debit card purchase—anything that moves money out.

Deposits do not count. Walking into the branch and putting cash in does not count. An ATM withdrawal counts. A transfer to your checking account counts. A check you write counts. If you hit six in a calendar month, the seventh transaction either gets declined or the bank charges you a fee (usually $10 to $25). Some banks close the account if you repeatedly exceed the limit.

In practice, this limit matters most if you use the account as a checking account. If you use it as a savings account—deposit money, let it sit, withdraw once or twice a month—you will never hit the limit. If you move money in and out constantly, you will either need to pay fees or switch to a checking account.

How your money stays safe and what FDIC insurance covers

Money market accounts at FDIC-insured banks are protected up to $250,000 per depositor, per bank, per account ownership category. That means if you have $300,000 in a money market account at Bank A and the bank fails, the FDIC pays you $250,000 and you lose $50,000. If you have $200,000 in a money market account at Bank A and $100,000 in a savings account at Bank A, both are covered because they are different account types.

The insurance is automatic—you do not sign up for it or pay for it. It is funded by fees banks pay to the FDIC, not by taxpayers. The FDIC has never run out of money to pay claims. If your bank fails, the FDIC either arranges for another bank to take over your account (and you keep access within days) or mails you a check within weeks.

FDIC insurance does not protect you if you lose money because the interest rate fell. It protects you only if the bank itself fails. If you deposit $100,000 at 4.5% and the rate drops to 2.0%, you have not lost money—your $100,000 is still there, earning less. The insurance covers the $100,000.

Why banks pay more on money market accounts than savings accounts

A savings account rate is set by the bank and does not have to move when the Fed moves. A bank might keep its savings rate at 0.01% even when the Fed raises rates, because savings account customers rarely shop around and rarely leave. A money market account rate is tied to the market, so banks must raise it or lose customers to competitors.

The higher rate also reflects what banks can do with your money. When you deposit cash in a savings account, the bank can lend it out at a higher rate and pocket the difference. When market rates are high, the bank earns more on those loans, so it can afford to pay you more and still make a profit. When rates are low, the bank earns less, so it pays you less.

Money market accounts also attract larger deposits—people with $50,000 or more to park—and banks compete harder for that money. A savings account might draw a customer with $5,000. A money market account might draw a customer with $500,000. The bank is willing to pay more to win that business.

Checking features: debit cards, checks, and transfers

Most money market accounts come with a debit card and a checkbook, making them look like checking accounts. You can swipe the card at a store or ATM. You can write a check to pay a bill. You can transfer money to another account online. The difference is the six-transaction limit—do any of those things more than six times in a month and you hit the restriction.

Some banks offer unlimited transfers if you move money between accounts at the same bank, but count transfers to other banks toward the limit. Some banks count debit card purchases but not ATM withdrawals, or vice versa. Read the account terms before opening—the rules vary.

If you need to move money in and out constantly, a checking account is the better choice. You get unlimited transactions and usually a lower interest rate (often 0.01% or less). If you want to earn interest and do not mind the six-transaction limit, a money market account wins.

How to compare money market accounts across banks

The rate is the main thing to compare, but it is not the only thing. Check the current rate, the minimum balance required to open the account, and the minimum balance required to earn the advertised rate. Some banks pay 4.50% on balances of $25,000 or more but only 3.00% on smaller balances.

Check the fee structure. Some banks charge a monthly maintenance fee ($5 to $10) unless you keep a minimum balance. Some charge a fee if you exceed the six-transaction limit. Some charge an inactivity fee if you do not make a deposit or withdrawal for a certain period (usually a year). These fees can erase the benefit of a higher interest rate.

Check whether the bank is FDIC-insured and whether it is a brick-and-mortar bank or an online-only bank. Online banks usually pay higher rates because they have lower overhead, but you cannot walk into a branch. Brick-and-mortar banks usually pay lower rates but offer in-person service. Neither is inherently better—it depends on what you need.

Frequently Asked Questions

Can I write checks from a money market account?

Yes, most banks provide a checkbook with money market accounts. Checks count as outgoing transactions, so writing more than six checks per month triggers the transaction limit. If you write checks frequently, a checking account is a better fit.

What happens if I exceed the six-transaction limit?

The bank either declines the transaction, charges you a fee (usually $10 to $25 per transaction over six), or closes the account if you repeatedly violate the limit. Check your account agreement to see which your bank does.

Is my money locked in, or can I withdraw it anytime?

You can withdraw money anytime without penalty, but you are limited to six outgoing transactions per month. The money is not locked in—you just cannot move it out more than six times monthly without hitting a restriction.

How often does the interest rate change?

The rate changes when the Federal Reserve changes its benchmark rate, which happens roughly eight times per year. Your bank usually updates your rate within one to three weeks of a Fed announcement. Between Fed meetings, your rate stays the same.

What is the difference between a money market account and a money market fund?

A money market account is a bank deposit account that is FDIC-insured and has a transaction limit. A money market fund is an investment that buys short-term debt and has no transaction limit but is not FDIC-insured. If you want safety and do not mind the transaction limit, choose an account. If you want flexibility and can accept investment risk, a fund may work.