Whether you’re new to banking and just opening your first account or you’ve been using a bank for many years, you may wonder about the differences between a money market account and a checking account.
Many people prefer to open both types of accounts, especially if their bank has no minimum deposit and no monthly maintenance fees on either type of account. But what’s the difference? What are the advantages and disadvantages to managing both types of accounts? Is one inherently safer than the other?
Let’s start by exploring the differences and similarities.
Money Market vs. Checking Account: Understand the Difference
A checking account, as most people know, is a primary bank account that allows you to deposit funds in cash or by depositing a check at your branch or through an ATM, via wire transfer or via ACH direct deposit. You can withdraw money in the same way.
Most checking accounts also provide a debit card that allows you to make online purchases and payments and make purchases at the point of sale at brick-and-mortar locations.
Most checking accounts, with a few notable exceptions, offer very low, if any, interest on your deposit. Some banks, neobanks and credit unions offer up to 5.00% interest on your checking account balance. There are also high-yield savings accounts that deliver up to 5.25% interest.
People often choose savings accounts to earn higher interest rates. However, the downside to many savings accounts is they don’t provide paper checks or easy access to your money without transferring funds into your checking account.
A money market account combines the best of your savings and checking account: easier access to your money plus high interest rates.
What Is a Money Market Account?
A money market account is a deposit account, similar to a checking or savings account. According to the Federal Deposit Insurance Corp., the average money market account rate is 0.65% as of Oct. 16, which is higher than the average interest checking and savings account rates of 0.07% and 0.46%, respectively. However, it’s important to note that rates vary widely. Some money market accounts offer annual percentage yields of over 4.00% or 5.00%, which are comparable with those offered by high-yield savings accounts.
But unlike a savings account, an MMA often comes with a debit card and paper checks. That means you can make purchases online or at the point of sale, easily use your money market account to pay bills, and still collect interest on your deposit.
Is a Money Market Account Safer Than a Checking Account?
Practically speaking, if you are responsible with your money, a money market account and a checking account are equally safe places to park your cash. It’s important to note that both money market accounts and checking accounts at banks are FDIC insured up to the maximum limits allowed by law. That is, your money will be insured for $250,000 per depositor, per account ownership category, per bank. Joint accounts are insured for up to $500,000. Money market accounts and checking accounts at credit unions are likewise insured by the National Credit Union Administration.
A money market account is not a high-risk investment. Your money is as safe in your money market account as it is in your checking or savings account.
However, if you are saving your cash in a money market account with an intent to use it only for emergencies, the money market account might be safer than a checking account if you are prone to impulsive spending.
Most money market accounts have limits to the amount of checks you can write in a month or the number of ATM withdrawals you can make. They might also have minimum balance requirements. These factors might make you think twice about withdrawing the money for frivolous purposes, which would make the funds safer in your MMA than in a checking account where you can likely access them at any time without fees.
Pros and Cons of Money Market Accounts
As with any financial account, a money market account has pros and cons. These advantages and disadvantages of a money market account may vary based on your financial institution and its fees and policies.
- Usually high interest rates
- Easy access to your money through checks or debit card
- Insured by the FDIC or NCUA
- May have transaction limits or excessive transaction fees
- May have high minimum balance requirements
- May have monthly maintenance fees
Is It Better To Have a Checking Account or a Money Market Account?
A checking account is the best vehicle to manage your money on a daily basis. With complete freedom to withdraw funds in a variety of ways at any time, a checking account makes it easy to make purchases and pay bills.
With high interest rates, an MMA can be a great place to stash your emergency savings. You can reach it in seconds in a real emergency, but fees for excessive transactions may cause you to think twice before tapping into the money in your MMA for everyday living expenses.
For most people, a checking account and an MMA or a savings account can fill their financial needs for daily money management and access to emergency funds.
FAQHere's what people are asking about money market and checking accounts.
- Which is safer, a money market account or a checking account?
- Both a money market account and a checking account are FDIC insured up to $250,000 per depositor, per account ownership category, per financial institution. Both are equally safe and are not considered high-risk investments.
- Is there risk of losing money in a money market account?
- You won't lose money in a money market account unless you get hit with excessive transaction fees, pay monthly maintenance fees, or dip below minimum balance requirements and have to pay a fee.
- Many people confuse a money market account with a money market mutual fund. A money market mutual fund is a mutual fund that invests in low-risk money market securities like Treasurys. Investments in a money market mutual fund are not FDIC insured. Also, as with any investment, you could lose money in a money market mutual fund, although they are designed to be lower-risk, relatively secure investments.
- What is the downside of a money market account compared to a checking account?
- Unlike most checking accounts, a money market account may have high minimum deposit requirements and fees for excessive transactions.
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