What is a money market account?

When it comes to your savings, you want to know everything about where you’re putting your money and if you’re getting the most from it. If you’ve heard of a money market account but don’t really know what it is, you’re not alone. 

Here are the answers to the most frequently asked questions about money market accounts, sometimes referred to as MMAs.

Despite its name, a money market account has nothing to do with the stock market. A money market account is a unique savings account that generally earns you a higher savings rate than traditional savings accounts.¹ It may offer some check-writing and debit card options.²

Also, with the higher savings return benefits of a money market account, there may be certain restrictions. Often, money market account savings can require a higher minimum balance than traditional savings accounts.¹

While a money market savings account is a type of savings account, it's different from typical savings accounts. Overall, the greatest difference between a money market account and a savings account is the annual percentage yield (APY). The APY reflects how much your account will earn each year.³ It’s based on your interest rate and how often it’s compounded.

While searching for what a money market savings account is, you may have come across another type of savings account called a certificate of deposit, or a CD. This is a type of savings account that requires you to deposit money for a specific amount of time, called a term.⁴ Typically, the longer the term, the higher the APY.⁵  

A big difference between a CD and a money market account is that with a CD, you have to keep your money within the account for the term. (If you take it out early, you might have to pay a penalty.) Once the term is over, most CDs allow you to access your money, plus any interest earned. With a money market account, you can usually access your money without having to face penalties.

When you’re considering a money market account vs. a high-yield savings account, you’ll find them to be very similar at first glance. Both might require a higher minimum deposit, both might offer comparable interest rates and both might have similar restrictions on the number of withdrawals or transfers you’re allowed to make each month.

One difference between the accounts is access. They can both be used to support savings goals. But remember, money market accounts may give you the ability to write checks and use a debit card.

If you're looking into opening a money market account, how it works might be of interest to you. For customers, a money market account works similar to a savings account: You deposit your savings into the account, you start earning interest and your money is available when you want it.

How often do money market accounts pay interest? While it depends on your bank and your specific account, interest on money market accounts is usually credited monthly.⁶

So why the higher savings rate than traditional savings accounts? What’s the catch? Generally, the bank is giving you extra interest for keeping extra money in your account. The bank rewards you with the higher APY incentive if you meet certain requirements.⁷

When it comes to your savings, you want to know your money is safe. At insured banks and institutions, it is. If your bank fails, your money is secure because the Federal Deposit Insurance Corporation (FDIC) promises to insure your money up to the allowable limits.⁸

If you’re thinking of opening a money market account, hold onto this list so you can have the pros and cons handy. It’s important to know the benefits and advantages of a money market account, as well as any disadvantages.

Pros

• They usually have higher savings interest rates than a typical savings account.
• They are typically FDIC-insured.
• They may allow you to have access to your money via debit card or checks.

Cons

• They might require a minimum balance to receive the highest savings interest rate.
• They may limit how many times you can access your money a month.

Many banks and many credit unions offer money market accounts, but they’re not all the same. The first thing to consider is the savings rate. As you’ve seen, a higher savings rate can earn you more money. However, you should also consider any promotions a bank may offer. Some banks may offer bonuses when you open a new account.

Next, you’ll want to find out if there are fees—and how these fees might affect your savings. Some accounts are free as long as you maintain the minimum balance, but it’s always a good idea to check the fine print.

Finally, you should understand how much you can afford to save. You want to ensure you have enough money available for your day-to-day spending. When you research the minimum balance requirements and transaction restrictions, you want to know you can comfortably afford to meet the conditions on a regular basis.

As you consider whether or not a money market account is right for you, it helps to keep in mind these things:

• If you usually just keep your savings for a rainy-day fund, a money market account is a great way to earn interest on the money you already have.
• If you're inclined to make frequent withdrawals, a checking account might be a better option.
• If you can't afford the minimum balance, a traditional savings account may suit you better.
• If you would like to have some accessible savings, rather than locking your money away in a CD, a money market account could be a good way to achieve that while still earning interest.
• If you already have the minimum balance sitting in another savings or checking account, it might make sense to open a money market account to take advantage of higher interest.

Either way, there are advantages of money market accounts as well as savings accounts, so the right one for you completely depends on your situation. And as you consider your circumstances and available options, keep in mind that your money management skills are growing as well as your savings.