A money market account is a hybrid between a savings account and a checking account
A money market account is a bank account that combines features of both a savings account and a checking account. You earn interest on your balance — like a savings account — but you also get a debit card and the ability to write checks — like a checking account. The tradeoff is that the bank limits how many times per month you can withdraw money or write checks, usually to six times.
The interest rate on a money market account is typically higher than what you would earn in a regular savings account, but it changes based on what the Federal Reserve does with interest rates. When rates go up, your account earns more. When rates go down, your earnings shrink. This is different from a certificate of deposit (CD), where the rate stays the same for the entire time your money sits there.
Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account holder per bank. This means if the bank fails, your money is protected up to that limit.
Key Takeaways
- A money market account earns interest like a savings account but lets you write checks and use a debit card like a checking account.
- Banks limit you to six withdrawals or checks per month, so these accounts work best for money you do not need to access frequently.
- Interest rates on money market accounts move up and down with the Federal Reserve's rate changes, unlike fixed-rate CDs.
- You need a minimum balance to open most money market accounts, and that minimum varies by bank — sometimes $1,000, sometimes $10,000 or more.
How the withdrawal limit works in practice
The six-transaction limit per month is a federal rule that applies to all savings-type accounts, including money market accounts. A transaction counts as a withdrawal, a check you write, a debit card purchase, or a transfer to another account. It does not count as a deposit or a balance inquiry.
If you go over six transactions in a month, the bank can charge you a fee — usually $10 to $25 per excess transaction — or convert your account to a checking account. Some banks will straightforward refuse the transaction. This is why money market accounts are better for money you plan to leave alone, not for everyday spending.
The limit exists because banks use the money in savings accounts to make loans. If too many people withdraw at once, the bank needs to have enough cash on hand. The Federal Reserve set this rule to make sure banks stay stable.
Minimum balance requirements and fees
Most banks require you to keep a minimum balance in a money market account to earn the advertised interest rate. That minimum might be $1,000, $2,500, $10,000, or even higher depending on the bank. If your balance drops below the minimum, the bank may charge a monthly fee or drop your interest rate to a much lower level.
Beyond the minimum balance, watch for these other fees: a monthly maintenance fee (usually $5 to $15), a fee for going over your six transactions, a fee for falling below the minimum, or a fee to close the account early. Some banks waive these fees if you set up direct deposit or keep a certain balance. Online banks tend to have lower fees and lower minimums than brick-and-mortar banks.
When a money market account makes sense for your money
A money market account works well if you have money you want to earn interest on but might need to access in an emergency. Because you can write checks or use a debit card, you have more flexibility than with a savings account. The interest rate is usually better than a regular savings account too.
A money market account does not work well if you need to move money in and out frequently — say, more than six times a month. In that case, a regular checking account is better, even though you earn no interest. It also does not work well if you cannot meet the minimum balance requirement, because fees will eat up any interest you earn.
If you have a large amount of money you know you will not touch for a set period — say, six months or a year — a CD usually pays a higher interest rate than a money market account, and you do not have to worry about transaction limits.
How interest rates are set and what they mean for you
The interest rate on a money market account is called the Annual Percentage Yield (APY). This is the total amount you will earn in a year, expressed as a percentage of your balance. If you have $10,000 in an account with a 4.5% APY, you will earn about $450 in a year (before taxes).
Banks set their rates based on what the Federal Reserve does. When the Federal Reserve raises its benchmark interest rate, banks raise the rates they offer on savings products. When the Federal Reserve lowers its rate, banks lower theirs. This can happen several times a year, so your rate might change monthly or even more often.
Because rates change, the interest you earn is not may provide. An account paying 4.5% today might pay 3.8% next month if the Federal Reserve cuts rates. This is why it is worth comparing rates across banks before you open an account — the difference between a 4.0% APY and a 4.5% APY adds up over time.
Money market accounts versus other savings options
A regular savings account has no transaction limits and usually no minimum balance, but the interest rate is lower — often 0.01% to 0.5% APY. You use it for money you want to keep safe and liquid but do not expect to earn much on.
A certificate of deposit (CD) locks your money away for a set time — three months, one year, five years — and pays a fixed interest rate that does not change. If you withdraw early, you pay a penalty. CDs usually pay more than money market accounts, but you lose access to your money.
A money market fund is different from a money market account. It is an investment product sold by brokerages, not a bank account. It is not FDIC-insured and the value can go down. Do not confuse the two.
How to open a money market account
To open a money market account, you will need a government-issued ID, your Social Security number, and proof of address (a recent utility bill or lease works). You will also need to decide how much money to deposit to meet the minimum balance requirement.
You can open an account online with most banks in 10 to 15 minutes. Some banks let you fund the account when ready with a transfer from another bank account. Others require you to mail in a check or visit a branch. Once the account is open, you will receive a debit card and checks in the mail within one to two weeks.
Before you open an account, compare rates and fees across at least three banks. A bank offering 4.5% APY with no monthly fee is worth more than one offering 4.75% APY with a $10 monthly fee. Online banks like Ally, Marcus, and Discover often have higher rates and lower fees than traditional banks.
Frequently Asked Questions
Can I use my debit card as much as I want, or does it count toward the six-transaction limit?
Debit card purchases count toward the six-transaction limit. If you use your debit card seven times in a month, you have exceeded the limit and may face a fee. This is why money market accounts are not meant for everyday spending — use a checking account for that instead.
What happens if I fall below the minimum balance?
The bank will usually charge you a monthly fee — often $10 to $25 — or drop your interest rate to a much lower level. Some banks do both. Read your account agreement to see what your specific bank does. If you know you cannot maintain the minimum, choose a bank with a lower minimum or no minimum at all.
Is my money safe in a money market account?
Yes, as long as the bank is FDIC-insured and your balance stays under $250,000. The FDIC guarantees your money even if the bank fails. Make sure the bank displays the FDIC logo on its website or in its branch before you open an account.
Can the interest rate go down after I open the account?
Yes. The bank can lower your rate at any time, and they usually announce the change in advance. You are not locked into the rate you see when you open the account. If rates drop and you want a higher rate, you can move your money to a different bank.
How is the interest taxed?
Interest earned on a money market account is taxed as ordinary income. The bank will send you a 1099-INT form at the end of the year showing how much interest you earned. You report this on your tax return. The more interest you earn, the more tax you owe.