What Is a Money Market Account?

Money market accounts combine the desirable aspects of savings and checking accounts. Like savings accounts, money market accounts earn interest on deposited funds. Some institutions even offer special money market rates if you have a different account open with them and are in good standing.

Money market accounts (MMAs) are an attractive alternative to traditional savings accounts because they provide a higher interest rate compared with regular savings accounts while still allowing you to access your funds with a debit card or checks.

Like savings accounts, money market accounts earn interest on your deposited funds. The bank determines the interest rate, which can fluctuate over time based on market conditions. Most money market accounts use a variable interest rate that compounds daily or monthly.

Money market accounts also come with some features found in checking accounts. You'll receive a debit card or check-writing privileges that let you access and spend your money when needed. However, banks typically limit the number of withdrawals and transfers you can make each month. Many banks follow the previous federal guideline of a maximum of six withdrawals or transfers per monthly statement cycle.

Transactions counting towards this limit include debit card purchases, clearing checks and transferring funds out of the account. The purpose is to distinguish money market accounts as savings vehicles rather than unrestricted checking accounts. Some banks may set higher withdrawal limits or charge fees for exceeding the monthly allowance.

Banks also typically require higher minimum balances for money market accounts than basic savings accounts. Minimum balances between $1,000 and $10,000 are common, and you may be charged fees if your balance falls below the minimum. Meanwhile, some online banks offer money market accounts with zero or low minimum balance requirements.

Unlike a typical savings account, money market accounts allow you to invest your money in short-term, low-risk securities like government bonds, certificates of deposit (CDs) and other conservative investments. This enables them to offer higher interest rates than traditional savings accounts. Interest is typically compounded daily, meaning the interest earned is added to your principal balance each day, allowing that interest to earn interest on top of itself.

The interest rate is still variable and determined by the bank based on factors like the federal funds rate and the bank’s need to attract deposits. Rates can fluctuate over time based on market conditions.

Like any financial product, money market accounts have pros and cons, usually determined by your intended use of the funds and your capacity to maintain a higher minimum account balance.

While both are labeled as "money market accounts," bank money market accounts and money market mutual funds are not the same thing.

Unlike bank money market accounts, money market mutual funds invest pooled cash from investors into low-risk, short-term securities like U.S. Treasury bills and notes. You buy shares of these funds which aim to provide a place to hold and earn income on cash.

Money market mutual fund yields can fluctuate daily based on the performance of their underlying holdings. They don't provide check-writing or debit card access, and they're not insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), so there is a risk that the fund could potentially lose principal.

Several factors determine interest rates for money market accounts. These include the broader interest-rate environment, the bank’s business model and the demand and supply of money. Banks that get a lot of their business from deposit accounts need to offer competitive rates to attract more customers.

Below are some money market rates offered by large banks in the U.S.:

One main factor in money market rates set by banks is the broader interest-rate environment. When market rates are high, savings account rates, including money market accounts, also tend to go up. When market rates head lower, so do money market account rates.

Some money market accounts earn according to a balance tier, meaning your exact interest rate depends on your account balance. Higher balances usually earn at a higher rate. Money market account rates are variable, meaning they can change at any time. However, banks typically provide a notice period before implementing rate changes.

While money market accounts offer higher returns than traditional savings accounts, they typically yield lower returns compared to stock market investments.

Money market accounts are considered low-risk, as they invest in highly secure, short-term instruments. By comparison, stock market investments carry a higher level of risk due to market volatility. While stocks have the potential for higher returns, they also come with the possibility of significant losses.

The best way to grow your money depends on your individual financial goals, risk tolerance and investment time horizon. If you prioritize safety and liquidity, a money market account may be a suitable choice. However, if you have a longer-term investment horizon and are comfortable with higher risk, a diversified stock market portfolio could potentially offer greater returns.

Here are a few ways to maximize your interest earnings in money market accounts:

In the banking world, the term ‘relationship banking’ refers to the practice of offering customers a broad range of financial products and services from a single provider. This can include checking accounts, savings accounts, loans, credit cards and money market accounts. Many banks offer what are known as ‘relationship benefits’ to their customers. These benefits aim to reward customers for their loyalty and for maintaining multiple accounts with the same bank.

One of the most common relationship benefits is the potential to earn higher interest rates on money market accounts. If a customer holds a checking or savings account with the bank, they may be eligible for these enhanced rates. This is a win-win situation for both the bank and the customer. The bank benefits from the additional business, and the customer enjoys a higher return on their money market account.

We compare money market accounts to a variety of other account types. Spreading money across several types of accounts can help with financial goal-setting and curb unnecessary spending.

Understanding the benefits and features of money market accounts is important when deciding to open one. Here are some of the most common questions about money market accounts.