Money market accounts can offer a happy medium for savers, with better interest rates than a savings account, fewer restrictions than a CD, and the ability to write checks like a checking account. If you don't need frequent access to your funds, a money market account could be an option that will provide a step up in your interest rate without sacrificing too much convenience.
A money market account is very similar to a savings account in that it’s a safe place to store money that pays you interest for keeping it there. Unlike a savings account, though, you can write checks or use a debit card to access that money.
Banks use deposits to earn money by making loans, so they pay interest to get consumers to keep money with them. Money market accounts get their name from the “money markets,” networks of banks and financial institutions that routinely exchange short-term loans in the course of doing business. When you open a money market account, your money will go to your bank’s short-term loans to other banks, and your interest rate is essentially your cut of the proceeds.
Higher interest rates usually reflect account terms that make it easier for the bank to utilize the money stored there for making loans. Money market accounts, though, are an interesting special case in that they let you write a limited number of checks or make a limited number of debit card transactions while still paying interest rates that are usually better than traditional savings accounts.
Money market accounts and savings accounts are frequently used in similar ways by consumers, but there are some key similarities and differences to note. Here are some notable features to consider before making a decision about which type of account is right for you.
The limit of six checks or debit account transactions per month for money market accounts is written into Federal Reserve regulations, so you won’t find options offering more. Savings accounts, though, are subject to the same regulations and frequently won’t offer any compatibility with a debit card or check writing. If you’re looking for a way to grow your savings with competitive interest rates but still want to be able to use that money to occasionally cover checks, a money market account might be for you.
The cap on transactions, though, does not mean that you won’t be able to access your money should you need it. Going over your six transactions will usually just mean paying a penalty. If you repeatedly exceed the six transactions, your bank will eventually be required to close your account.
Money market accounts will typically feature minimum balances that are higher than what you might see for checking or savings accounts. That said, there is a wide variety of money market accounts and savings accounts out there, so some options for money market accounts will have very low account minimums and some savings accounts might have relatively high account minimums.
Higher Interest Rates
Money market accounts usually have higher interest rates than traditional savings accounts, making them an appealing option for saving money. However, high-yield savings accounts can frequently offer rates that are competitive with money market accounts, so it’s important to compare all of your options before choosing the account that offers the best combination of high interest rates and accessibility.
Fees and Penalties
Before considering a money market account, it’s important to know whether or not they charge monthly fees. Even a small monthly fee can eat into your interest returns, particularly if you have a low balance. However, a high enough interest rate can make it more than worth paying a fee in the long run, so be sure to compare options.
Money market accounts will also frequently have penalties for exceeding the transactions limit, which could be important if you think there’s a good chance you may eventually have to pay one.
Federal Deposit Insurance Corporation
Money deposited in both savings accounts and money market accounts is insured by the FDIC, so you can be sure that your money will be safe even if the bank fails. The federal government has your back, and you have essentially zero risk of losing your savings.
It is important to note, though, that money market accounts are substantially different from money market funds, which are investment vehicles that can drop in value and aren’t FDIC insured.