Sophie is a personal finance writer covering topics such as saving, investing, credit repair, and holistic financial wellness. Specifically, she’s interested in making wealth-building more accessible for all.
If you're looking to add a low-risk investment to your portfolio, a money market account may be something to consider. Learn the benefits and downsides of money market accounts, 5 top money market account recommendations, and tips for choosing the right account for your needs.
What is a money market account?
A money market account (MMA) is a type of savings account that earns interest. It's similar to a regular savings account, except you can earn interest on your deposits and take advantage of features like check-writing privileges and debit card access.
If you're looking for a safe and flexible way to save money, a money market account may be just what you need. Money market accounts are a type of savings account that offer higher interest rates than traditional savings accounts while still providing easy access to your funds.
But what exactly are money market accounts, and how do they work? Below we'll explore everything you need to know about money market accounts, from the benefits to the potential drawbacks, so you can decide if they're the right savings tool for you.
How does a money market account work?
Money market accounts differ from traditional savings accounts because they tend to offer higher interest rates, which is one of their main appeals. Because of this, however, they also have higher minimum balance requirements than regular savings accounts, often requiring a minimum deposit of $1,000 or higher.
MMAs often share some of the same features as a checking account, like check-writing privileges and having a debit card tied to the account. That said, MMAs have less account flexibility than a checking account, as withdrawals and account transactions come with restrictions. Typically, you're limited to six withdrawals per month.
Here are the key characteristics of a money market account:
They earn interest: MMAs let you earn interest on your deposits, typically at a higher rate than a traditional savings account.
They can come with debit card access: Some MMAs include a debit card when you open the account, giving you ATM access for deposits, withdrawals, and transfers (though you're more limited on how often you can make withdrawals.)
They may have check-writing privileges: Unlike regular savings accounts, some MMAs may allow you to write checks, making them a slightly more flexible option than regular savings accounts.
All in all, MMAs are ideal as a short-term savings vehicle for goals like putting a down payment on a new car or building up an emergency fund.
Pros and cons of a money market account
Pros | Cons |
|---|---|
Higher interest rates | Higher minimum balance requirements |
May include check-writing privileges | Higher initial deposit requirements |
May include debit card access | Limited withdrawals per month |
Money market accounts usually have FDIC insurance, meaning up to $250,000 of your money is protected if the bank fails.
MMAs with check-writing capabilities and a debit card can help you quickly access your funds for unexpected expenses. However, you may have monthly fees if your balance falls below the required amount and higher minimum balance requirements than regular savings accounts.
Overall, a money market account can be a valuable tool for savers who want a higher interest rate and easy access to their funds. Still, weigh the pros and cons and understand the account's terms and conditions before deciding.
Money market accounts vs. other types of accounts
To save money, there are various account types to choose from, each with its advantages and drawbacks.
Here's a closer look at how money market accounts compare to other common types of savings accounts, like traditional savings and checking accounts, certificates of deposit (CDs), and money market funds.
Money market account vs. saving accounts
Money market accounts and traditional savings accounts are common types of deposit accounts banks and credit unions offer. One of the key differences between them comes down to interest rates.
MMAs generally offer slightly higher interest rates than traditional savings accounts (although this varies depending on the current state of the economy since MMA interest rates rise and fall with inflation). However, they also tend to require higher a minimum balance. In contrast, traditional savings accounts often have lower minimum balance requirements, if any.
Some MMAs may also charge monthly fees if your balance falls below the minimum requirement. If you're hoping to earn more in interest without paying the higher minimum balance of an MMA, you might consider a high-yield savings account instead. HYSA's are another great way to earn far more in interest than traditional savings accounts for a much lower minimum balance.
Money market account vs. checking accounts
While most money market accounts come with check-writing privileges (and sometimes even a debit card) like a regular checking account, they aren't designed for you to use for day-to-day spending. MMAs typically restrict the number of transactions you can make per month, whereas checking accounts generally offer unlimited transactions.
While the federal mandate limiting MMA withdrawals to six per month was lifted in 2020, many banks still impose this limit. 1 This is where the main difference between MMAs and checking accounts lies. While checking accounts are designed for everyday spending, MMAs aim to be savings accounts with limited access to your funds.
Money market account vs. CDs
A certificate of deposit (CD) is a savings account that pays a fixed interest rate over a set term, with a penalty for withdrawing the funds before the term ends.
CDs are long-term savings vehicles with set terms and penalties for early withdrawals. This means money in a CD is less liquid (that is, less readily available) than money in an MMA.
CDs also typically require a higher minimum deposit than MMAs, but in exchange for that higher deposit, you may be able to earn a higher interest rate. CDs also offer a fixed rate of return for the term, whereas MMAs generally have variable rates that can change over time.
Chime tip: If you're looking for a long-term savings option and don't need immediate access to your funds, a CD may be a smart choice. However, consider an MMA if you want a more flexible savings option with a competitive interest rate.
Money market account vs. money market mutual funds
Money market accounts and money market mutual funds (MMFs) are two different financial products that often get confused with each other. Unlike MMAs, money market funds aren't offered at banks and credit unions. Instead, they're offered by mutual fund companies and investment brokerage firms.
While an MMA is a federally insured interest-bearing account, money market funds are mutual funds that invest in short-term debt securities. Unlike MMAs, they aren't FDIC-insured and are not deposit accounts but investment vehicles that allow you to earn a return on your cash.
MMFs are slightly higher-risk investments because they aren't FDIC-insured and subject to fluctuations in the market. While still considered a relatively safe investment, they carry some risk since returns aren't guaranteed.
Best money market accounts
If you're considering a money market account, compare rates and fees across different financial institutions to find the best option.
Bank/Institution | APY | Minimum deposit |
|---|---|---|
Discover2 | 3.5% | $2,500 |
Sallie Mae Bank3 | 4.05% | $0 |
Western Banks4 | 4.55% | $5,000 |
Conexus Credit Union5 | 4.26% | $1,000 |
Vio Bank6 | 4.55% | $100 |
When comparing potential MMAs, you'll want to look for high-interest money market accounts to maximize your savings.
Is a money market account right for you?
Money market accounts can be helpful for savers who want to earn a higher return while maintaining access to their funds. If you're considering opening a MMA, compare your options and consider your unique financial goals before deciding if a money market account is the right choice.
At any rate, building up your savings – regardless of the specific vehicle you choose to keep it in – is foundational to finding more financial freedom.