A money market account is a hybrid between a savings account and a checking account

A money market account (sometimes called an MMA) is a bank account that combines features of two other accounts you may already know. Like a savings account, it pays you interest on the money you keep in it. Like a checking account, it lets you write checks or use a debit card to withdraw your money. The tradeoff is that banks usually require you to keep a larger balance in a money market account than in a regular savings account, and they limit how many times per month you can make withdrawals.

The name comes from the "money market" — a financial marketplace where banks and large institutions lend money to each other for short periods. Banks use the deposits you place in a money market account to participate in that market, which is why they can afford to pay you more interest than they would on a basic savings account.

Money market accounts are FDIC insured at most banks, which means if the bank fails, the federal government protects your money up to $250,000. This makes them safer than investing that same money in stocks or bonds, though the interest rate is usually lower.

Key Takeaways

  • A money market account pays interest like a savings account but lets you write checks or use a debit card like a checking account.
  • Banks require a higher minimum balance — often $2,500 to $10,000 — to open and maintain a money market account.
  • You can make a limited number of withdrawals per month (typically six), and exceeding that limit may result in fees or account closure.
  • Money market accounts are FDIC insured up to $250,000, making them a lower-risk place to store money while earning interest.
  • The interest rate on a money market account changes based on what the Federal Reserve does with interest rates, so your earnings go up and down over time.

How the interest rate works and why it changes

Banks set the interest rate on a money market account based on what the Federal Reserve (the central bank of the United States) charges other banks to borrow money. When the Federal Reserve raises its rates, banks raise the rates they offer on savings and money market accounts. When the Federal Reserve lowers its rates, banks lower yours.

This means the interest you earn is not locked in. If you open a money market account earning 4.5% per year, that rate can drop to 3.8% next month if the Federal Reserve changes course. Some banks change their rates weekly; others change them monthly. You should check your account statement or log into your bank's website to see what your current rate is.

The interest rate also depends on how much money you have in the account. A bank might offer 4.5% on balances of $100,000 or more, but only 3.2% on balances between $10,000 and $25,000. Read the fine print when you open the account so you know what rate applies to your balance.

The minimum balance requirement and what happens if you fall below it

Most banks require you to keep a minimum balance in a money market account to earn the advertised interest rate and avoid fees. This minimum is usually between $2,500 and $10,000, though some banks ask for $25,000 or more. A few banks with online-only operations have lower minimums, sometimes $500 or less.

If your balance drops below the minimum, the bank may charge you a monthly fee (often $10 to $25) or drop your interest rate to a much lower one. Some banks will close the account if you stay below the minimum for several months. Before you open a money market account, confirm what the minimum is and whether the bank will notify you before charging a fee if you dip below it.

The minimum balance is the amount you must keep in the account at all times — not just the amount you need to open it. If you open with $5,000 and the minimum is $5,000, you cannot withdraw any money without triggering a fee.

Withdrawal limits and why banks impose them

Federal rules once limited all savings and money market accounts to six withdrawals per month. Those rules have changed, but many banks still impose their own limits — often six withdrawals, sometimes more. A "withdrawal" includes writing a check, using a debit card, transferring money to another account, or making an electronic payment.

Banks impose these limits because they use your deposits to make loans and investments. If too many people withdraw money at once, the bank has to quickly convert those investments back into cash, which costs money and disrupts their business plan. By limiting withdrawals, banks protect themselves.

If you exceed the withdrawal limit, the bank may charge you a fee per excess withdrawal (typically $10 to $25) or close your account. Some banks are more lenient than others — a few will straightforward convert your account to a checking account if you consistently exceed the limit. Ask your bank what happens if you go over before you open the account.

Money market accounts versus savings accounts and checking accounts

A savings account pays interest but usually does not let you write checks or use a debit card. It also has lower minimum balance requirements — often $100 or less — and may have fewer withdrawal restrictions. A savings account is better if you want to set money aside and not touch it often.

A checking account lets you write unlimited checks and use a debit card freely, but it pays little or no interest. A checking account is better if you need to access your money frequently for everyday expenses.

A money market account sits in the middle. It pays more interest than a checking account but less than some high-yield savings accounts. It lets you write checks and use a debit card, but with limits. It requires a higher minimum balance than either a savings or checking account. A money market account makes sense if you have a chunk of money you want to earn interest on, but you also want the flexibility to access it without going through a transfer process.

Where to find money market accounts and how to compare them

Most traditional banks offer money market accounts, as do credit unions and online-only banks. Online banks often offer higher interest rates because they have lower overhead costs, but they may have fewer ways to deposit cash (you cannot walk into a branch and hand over money). Traditional banks offer lower rates but more convenience if you need to deposit cash or speak to someone in person.

To compare money market accounts, look at three things: the interest rate, the minimum balance requirement, and the withdrawal limit. A bank advertising 4.8% interest might require $25,000 to open, while another offering 4.2% might only require $2,500. The higher rate is not always the better deal if you cannot meet the minimum balance.

You can search for current rates on financial websites that track bank products, but rates change frequently. Call or visit the bank's website directly to confirm the rate before you open an account. Also ask whether the rate is may provide for a certain period or whether it can change when ready.

When a money market account makes sense for your situation

A money market account works well if you have $5,000 or more that you want to keep safe and earn interest on, but you do not want to lock it away in a certificate of deposit (CD) for a set period. It also works if you need occasional access to the money — say, a few times a month — but you do not need to write checks constantly.

A money market account is less useful if you have less than $2,500 to deposit, because the minimum balance requirement will eat into your earnings or trigger fees. It is also less useful if you need to withdraw money more than six times a month, because you will pay fees or face account closure.

If you are trying to decide between a money market account and a high-yield savings account, compare the interest rates first. Some high-yield savings accounts now pay as much or more than money market accounts, with no withdrawal limits and lower minimum balances. The main advantage of a money market account is the ability to write checks, which most savings accounts do not allow.

Frequently Asked Questions

Can I lose money in a money market account?

No. Your principal — the money you deposit — is protected by FDIC insurance up to $250,000 at most banks. The interest rate can go down, so you may earn less than you expected, but you will not lose the money itself unless the bank fails, which is extremely rare.

What counts as a withdrawal?

A withdrawal is any time you take money out: writing a check, using a debit card, transferring to another account, or making a payment online. Deposits do not count against your limit. Some banks count ATM withdrawals; others do not. Ask your bank for their specific rules.

Can I have more than one money market account?

Yes, you can open money market accounts at different banks. However, FDIC insurance covers only $250,000 per account type per bank, so if you have two money market accounts at the same bank with $200,000 in each, only $250,000 total is insured. Spread large amounts across different banks if you need full coverage.

Is the interest rate on a money market account better than a savings account?

Usually, yes — money market accounts typically pay 0.5% to 1% more than basic savings accounts. However, some high-yield savings accounts now pay as much or more than money market accounts. Compare rates directly rather than assuming one type always pays better.

What happens if I need my money before the month is over?

You can withdraw it, but if you exceed your bank's withdrawal limit, you will pay a fee per excess withdrawal. If you know you will need frequent access, a regular savings account or checking account may be a better fit, even if the interest rate is lower.