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What is a Money Market Account?

A money money account is a type of savings account that usually pays higher interest rates - which is great for stashing your cash - but also tend to have a higher minimum balance requirement. Like traditional savings accounts, your monthly withdrawals are limited.

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What is a money market account?

A money market account is essentially a “turbo” version of a savings account. They offer higher interest rates at the cost of higher minimum balances, which are sometimes $1,000 to $2,500.

Like a savings account, your monthly withdrawals are limited to up to six, by federal law. Additional withdrawals will cost a fee.

A money market account is great for storing money for an emergency or saving up for a splurge.

Money market calculator

$
$
Annual contribution of $1,200
years
%
Interest is compounded monthly
Your savings
$11,929
in 5 years
Interest earned
$929
Starting balance
$5,000
Total contributions
$6,000
$100 per month over 5 years
If you start with $5,000, and save $100 each month (or $1,200 every year), then after 5 years, you will have $11,929, assuming an interest rate of 2.20%%.

How is a money market account different from other types of accounts?

There are many choices for you to store your money. A money market account generally offers higher interest rates and some liquidity, but often requires a higher minimum balance.

Money market account Certificates of Deposit (CDs) Regular savings account Checking account
Purpose Saving money Saving money Saving money Easy access to your money
Benefits Higher interest rates than regular savings account Usually higher interest rates than money market accounts Higher interest rates compared to checking accounts Access to your funds
Downside Higher minimum balance

Limited access to money
Higher minimum balance

Need to pay a penalty, which can be high, to access money before CD expiration date
Sometimes requires a minimum balance

Limited access to money
Very low or no interest
What is it best for? Large amount of money that you don’t need immediately Large amount of money that you don’t need for months or years Money that you don’t need immediately Money that you plan to spend soon
How should I use this account? • Longer term savings
• Building an energy fund
• Saving up for a big ticket item (such as a vacation or car)
Longer term savings that you don’t need access to for while • Longer term savings
• Building an energy fund
• Saving up for a big ticket item (such as a vacation or car)
Paying bills
• ATM withdraws
• Daily purchases
• Debit card usage
• Checks
Is there a minimum balance required? Yes

Usually $1,000 or more. Varies by bank.
Yes

Usually a minimum investment of $1,000 or more. Varies by bank.
Usually low or none Usually low or none
What’s the interest rate? Usually higher than interest rates for regular savings accounts. Interest rate may increase with higher balances. Interest rates are based on the term of the CD and the amount of the balance.

Usually higher than money market accounts due to illiquidity.
Low Usually minimal or none
Can I access my money? Limited

No more than 6 withdrawals per statement cycle.
Only at the expiration of the CD.

Early withdrawal will incur a penalty.
Limited

No more than 6 withdrawals per statement cycle.
Yes
Can I write checks? Limited No No Yes
Do I get a debit card? Yes No No Yes

What are the advantages of a money market account?

Higher interest rates than a traditional savings account. Interest rates tend to be higher than rates offered by a traditional savings account.

May be insured up to $250,000 if you open a money market account with a bank that is part of the FDIC.

Somewhat liquid. You have similar access to your money market account as you do your savings account. Both limit your withdrawals to no more than six per statement cycle - above this and you will incur a fee.

However, a money market account is significantly more liquid than a Certificate of Deposit (CD), which you can only access at the end of its maturity. Early access to your money will incur a penalty.

Lower risk than investing in the stock market. You are not subject to stock market fluctuations and will not lose your money as a result of a stock market collapse.

What are the drawbacks of a money market account?

Limited number of withdrawals per month: Money market accounts usually only allow a limited number of withdrawals per month as per federal law, Regulation D.

You will be charged a fee if you go above this limit. Pay enough fees and the higher interest rates you earn may not be worth it.

Higher minimum balance: Money market accounts usually have higher minimum balance requirements than traditional savings accounts. This is money that you will not be able to withdraw or access.

In general, the minimum balance is at least $1,000 - $2,500, and varies by bank.

Should I get a money market account?

Even if you already have a checking and savings account, you may want to consider getting a money market account as well.

Certain savings accounts are better for certain situations.

Money market accounts are a great option if:

  • You don’t need immediate access to the money.
  • You are willing to keep more money in the account in order to meet the minimum balance requirements.
  • You will only write a maximum of a few checks a month.

What are the risks of a money market account?

Because money market accounts are offered by banks, if you choose a bank that is a Federal Deposit Insurance Corporation (FDIC) member or a credit union that is part of the National Credit Union Administration (NCUA), your money is insured up to $250,000.

This means that if the bank of credit union fails, you will be able to recover up to $250,000.

If you want to put more than $250,000 in a money market account, you can mitigate your risk of a bank failure by putting your money in multiple money market accounts, each at a different bank.

What’s the difference between a money market account and a money market fund?

You may have heard of money market funds and wondered if these are similar to money market accounts. The two are very different.

Offered by different types of institutions
Money market accounts, like savings accounts, are offered by banks.

Money market funds are offered by mutual fund companies and brokerages. These are actually a type of mutual fund, which is an investment vehicle, rather than a savings account.
FDIC insured
Unlike money market accounts, money market funds are not FDIC insured.

How does a money market fund work
Money market funds are invested in short-term debt such as certificate of deposit (CDs) and Treasury bills.