What Is a Money Market Account?

A money market account (MMA) is a richer version of a savings account. It typically pays a higher APY than savings accounts. But in exchange, you've got to shell out a deposit that ranges from $25 to $25,000. Don't let the top sticker price shock you -- most money market accounts fall somewhere in the middle.

You should consider opening a money market account to earn interest on short-term savings. The money market account pays more than the average savings account, and it's more flexible than the average certificate of deposit (CD). It's a good middle ground between the two.

Unsure if a money market account is right for you? No problem. Read on for an in-depth look at how money market accounts work, and how they stack up to other savings accounts.

What is a money market account?

A money market account is a savings account that combines features of traditional savings and checking accounts. It's different from money market funds, which are investment funds. Money market accounts are FDIC-insured, so your money is protected in case of bank failure.

MMAs offer APYs that are competitive with many of the best high-yield savings accounts. They grow your money more quickly than traditional savings accounts at brick-and-mortar banks. But unlike regular savings accounts, money market accounts sometimes give you checks or debit cards.

Money market account pros and cons

Like all bank accounts, money market accounts have their advantages and disadvantages. Here's a closer look at both.

Pros of a money market account

These are some of the key benefits of a money market account:

• High APY: Money market account APYs can be higher than the APYs you'll find with high-yield savings accounts. A high APY earns interest on deposits quickly.
• FDIC-insured: Money market accounts are FDIC-insured up to $250,000 per person, per bank. There's little risk of losing money with this account if your bank goes under.
• Easy access to funds: MMAs enable you to directly withdraw funds via electronic transfer, check, or debit card. Compare that to savings accounts, which rarely give customers debit cards or checks.

Cons of a money market account

Here are a few key drawbacks of the money market account:

• High minimum deposit: Money market accounts often have higher minimum balance requirements than savings accounts. If you cannot meet these requirements, you may be unable to open the account, or you may not earn the advertised interest rate.
• Transaction limits: Money market accounts may be limited to six transfers or withdrawals per month by the federal law known as Regulation D. However, rules have been suspended, so some banks may waive transfer limits.
• Not a great fit for long-term savings: While money market accounts offer competitive APYs, you can earn better returns by investing funds in CDs or with good stock brokers for five years or more.

Money market account vs. CD

Money market accounts and certificates of deposit (CDs) both offer high interest rates on deposits, and they're both available through banks and credit unions.

The key difference between them comes down to access. MMAs allow you to withdraw funds whenever you want, though they charge fees if you exceed your monthly transaction limits.

CDs charge you for withdrawing funds too early. Every CD has a term ranging from a few months to over five years -- or longer. If you withdraw your money before terms are up, you must pay penalties equivalent to one or more months of interest. You're also forced to withdraw all of your money at once. (You can't just take out part of it.)

You can set up a CD ladder to access funds more frequently. This strategy has you divide up your total deposit into equal chunks and put them into CD terms of varying lengths.

Long-term savings -- and cash you don't potentially need right away -- belong in CDs, not money market accounts. But money market accounts are the superior choice for short-term savings.

READ MORE: Best CD Rates

Money market account vs. savings account

Money market accounts and savings accounts are very similar. But there are key differences. 

MMAs offer easier access to funds via credit cards and checks. You can often pay for groceries by swiping a card linked to your money market account -- savings accounts don't let you do this. That's why money market accounts are often compared to checking accounts.

MMAs offer better rates than your average savings account. According to the FDIC, the average MMA rate is about 30% higher than that offered by savings accounts as of August 2023. If you're looking for high returns on deposits, MMAs are the place to be.

MMAs typically have higher minimum balance requirements than savings accounts. You might need $1,000 or more to open a money market account while you can open a savings account with $100 or less.

Don't have much to deposit? Okay with transferring money to checking accounts when you must withdraw it? Consider opening a high-yield savings account instead of a money market account.

Is a money market account right for you?

Money market accounts combine market-beating interest rates on deposits with easy access. That makes them ideal places to stash short-term savings. You can withdraw money frequently -- generally up to six times per month -- and earn some interest on cash. The catch is that you must meet minimum deposits, especially to earn the best rates.

No-deposit alternatives exist. Some money market accounts require no initial deposit, but offer worse APYs. Another option is to put cash in high-yield savings accounts. These have fewer deposit and balance rules, and the best offer rates competitive with MMAs.

Looking for a safe, profitable place to plop long-term savings? Consider putting money into one or more CDs. These bank accounts are FDIC-insured and earn even higher rates than MMAs. The tradeoff is CDs are inflexible -- once you put money in a CD, you must leave all of it there for the entire term. Otherwise, you typically pay early withdrawal fees.

Ready to open an MMA? Check out our top picks for the best money market accounts to find the right one for you.

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