A money market account is a type of savings account that has some of the same features as a checking account. It’s meant for long-term savings, but you can access your money at any time by using a debit card or writing a check. As of July 17, money market accounts are paying an average rate of 0.63%, according to the Federal Deposit Insurance Corp.
How Do Money Market Accounts Work?
Money market accounts work similarly to other deposit accounts, such as savings and checking accounts. You open one at a bank or credit union, deposit money into it, and the bank pays interest on your balance. The account balance is FDIC insured, and the interest is compounded, which means the account earns interest on both the principal balance — the amount of your deposits — and any interest previously earned on that balance.
Most MMAs accrue interest daily, which means the bank calculates it each day. The accrued interest is credited to your account once per month.
Here’s how compounding interest works over the course of three years on a new account with a $1,000 deposit with a 3% annual percentage yield:
- 3% interest on the $1,000 balance brings the account balance to $1,030.42 at the end of the first year
- 3% interest on the $1,030.42 balance brings the account balance to $1,061.76 at the end of the second year
- 3% interest on the $1,061.76 balance brings the account balance to $1,094.05 at the end of the third year
While your savings grows, you can withdraw some or all of your money whenever you want by filling out a withdrawal slip at the bank or by using the debit card or checks that come with your account. However, federal law limits the number of convenience withdrawals you can make to six per month.
The Federal Reserve defines convenience withdrawals as those “made by preauthorized, automatic, telephonic agreement, order or instruction, or by check, debit card, or similar order made by the depositor and payable to third parties.” Withdrawals made via a check you write to someone else and automatic bill payments, for example, are convenience withdrawals. Withdrawals made at the ATM or with a withdrawal slip at the bank are not.
The Fed has temporarily suspended the limit, but some banks have kept it in place or implemented their own. If you’ll need more frequent access to your money, you’re best off opening a separate checking account.
Note that not all banks offer money market accounts. Neither Capital One nor Chase has one, for example.
How Do Money Market Interest Rates Work?
Banks set their own interest rates based on many factors, including movement in the federal funds rate, which is set by the Federal Reserve’s Federal Open Market Committee, which raises and lowers the rate to control the money supply in response to economic conditions. In the high-inflation environment the U.S. has struggled with since the pandemic, the Fed has increased the federal funds rate to slow down the economy and help bring prices down. As the federal funds rate has grown, so have rates for deposit accounts, including MMAs.
Banks traditionally have paid higher interest rates on MMAs than on standard savings accounts. As of July 17, the average money market account rate was 0.63%, while the average savings account rate was 0.42%. However, online banks have blurred the lines. They often have just one savings account — a high-yield version with rates that rival MMAs’.
The rates banks publish are usually annual percentage yields, or APYs. APYs are the total amount of interest you’ll earn, including compounding, on an annualized basis. Banks calculate APYs using a formula that includes the principal balance (your deposits), the interest rate and the number of days in the year.
The difference can be significant on accounts with large balances. Take First Internet Bank’s money market account, which has a 3.70% interest rate on balances of up to $1,000,000. That’s worth $37,000 in interest after one year with no compounding. The APY is 3.76%, which translates to $38,254.79 with compounding.
Here are APYs for money market accounts GOBankingRates recently identified as being among the best:
|Bank||Money Market Account APY||Savings Account APY|
|U.S. Bank||to , depending on balance|
|Discover||(balances under $100,000)|
|EverBank||for 12 months, then to , depending on balance||(12-month introductory rate), then|
It’s important to read the fine print for any money market account you’re considering because some banks pay different APYs for different account balances, or tiers. Discover, for example, has two tiers: under $100,000, which pays APY, and $100,000 and up, which pays . Some banks pay no interest or negligible interest on balances in the lowest tier. U.S. Bank, for example, pays just APY on balances under $10,000. It reserves the rate for balances of $25,000 or more.
How To Open a Money Market Account
You can open a money market account at your local bank or online, using the bank’s website or mobile app. You must be at least 18 years old, be a U.S. citizen with a Social Security number and have a U.S.- or state-government ID. If your bank is a local or regional one, you might have to live in its service area to open the account.
Some banks allow you to open an account without funding it right away, although you’ll have to make a deposit before you can earn interest or withdraw money from the account. Other banks have minimum deposits. These are the minimum opening deposits for the banks listed above:
|Bank||Minimum Opening Deposit|
Should I Open a Money Market Account?
A money market account could be a great choice if you’re looking for no-risk way to build an emergency fund or save money toward a particular goal, such as a vacation, a down payment on a car or home or some other large purchase. As of July, rates are higher than they’ve been in decades, and your money grows risk-free. The one caveat is that many accounts limit you to six convenience withdrawals per month. If you think you might need more than that, consider opening a high-yield savings account and a separate account for checking instead.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of July 30, 2023.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- FDIC. 2023. "National Rates and Rate Caps."
- FDIC. 2023. "Deposit Accounts."
- Federal Reserve. "Regulation D."
- Consumer Financial Protection Bureau. 2022. "The Fed is raising interest rates. What does that mean for borrowers and savers?"
- Consumer Financial Protection Bureau. "Appendix A to Part 1030 — Annual Percentage Yield Calculation."