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Key takeaways
- A money market account is a deposit account that earns interest while providing check-writing and debit card access to your funds.
- Money market accounts currently earn between 0.47% and 4.00%+ APY, with top accounts offering rates significantly higher than traditional savings accounts, according to Bankrate’s rate tracking.
- These accounts are FDIC-insured up to $250,000 per depositor and combine the security of savings accounts with the transaction flexibility of checking accounts.
- Money market accounts work best for emergency funds and short-term savings goals where you need both competitive interest rates and occasional access to cash.
A money market account is a savings tool that combines competitive interest rates with greater flexibility than traditional savings accounts. Money market accounts (MMAs) provide additional access to your funds through checks, debit cards and electronic withdrawals, making it easier to manage your money when needed.
These accounts are federally insured by the Federal Deposit Insurance Corporation (FDIC) at banks or the National Credit Union Administration (NCUA) at credit unions, offering both security and growth potential. However, they may have withdrawal limits and higher minimum balance requirements compared to regular savings accounts.
Bankrate’s take:
The key difference between money market accounts and other deposit accounts is their hybrid nature — they earn interest like savings accounts but offer transaction capabilities similar to checking accounts. This makes them ideal for specific financial situations where you need both growth and accessibility.
How do money market accounts work?
Money market accounts generate interest on your balance, typically calculated daily and paid monthly. Banks and credit unions calculate interest daily and pay it monthly, typically quoting rates as annual percentage yield (APY) to help you compare earning potential across different accounts.
Interest rate mechanics
Money market accounts feature variable rates, meaning your earnings can rise or fall when market rates change. For example, if the Federal Reserve adjusts its target interest rate, your APY may follow suit. This variability means your returns aren’t guaranteed like they would be with certificates of deposit.
According to Bankrate’s data, the national average money market account APY is 0.47%, but the best money market accounts offer rates over 4.00% APY — almost than 10 times the average. This wide range makes comparison shopping essential.
Access and transactions
You can typically access your money via checks, debit cards or electronic transfers, though withdrawals may be limited under federal guidelines or bank policies. Some accounts require higher minimum balances to avoid fees or earn the best rates.
The transaction flexibility distinguishes money market accounts from traditional savings accounts, which rarely offer check-writing or debit card access. This makes money market accounts particularly useful when you need to write a large check — such as paying a contractor or making a down payment — directly from your savings.
Safety and insurance
Unlike money market funds which are investment products, money market accounts are deposit accounts protected by federal insurance up to $250,000 per depositor at each institution.
This insurance protection guarantees your principal even if the bank fails, making money market accounts one of the safest places to keep your cash while earning interest.
Bankrate insight: Best of both worlds
Money market accounts offer a sweet spot between savings accounts and checking accounts. You get better interest rates than most checking accounts while maintaining easier access to your money than you’d have with CDs or other time-locked savings products.
Based on Bankrate’s analysis, the average checking account earns just 0.18% APY, while money market accounts average 0.47% APY — and the best accounts exceed 4.00% APY. That’s a substantial difference in earning potential while still keeping your funds accessible.
What are the pros and cons of money market accounts?
Pros
- Competitive interest rates: Currently, the best money market accounts pay over 4 APY, helping your money grow faster than traditional savings accounts and potentially outpacing inflation.
- Federal insurance protection: Your deposits are insured up to $250,000 per account owner, provided the account is at an FDIC-member bank or NCUA-member credit union.
- Flexible access: Unlike CDs, you can access your funds when needed through checks, debit cards and electronic transfers without early withdrawal penalties.
Cons
- Higher minimum balance requirements: Money market accounts often require larger deposits than traditional savings accounts, either to open the account or earn the top APY.
- Potential withdrawal restrictions: While federal limits have been relaxed, many banks still impose transaction limits that could result in fees if exceeded.
- Variable rates: Your interest rate can change over time, potentially decreasing your earnings if market rates fall.
- According to Bankrate’s current rate tracking, the national average money market account APY is 0.45%, but the best money market accounts offer rates between 4.00% and 4.50% APY—more than 10 times the average. This wide range makes comparison shopping essential.
How to choose the best money market account
Finding the right money market account involves evaluating several key factors beyond just interest rates. The difference between an average account and a top-tier account can mean hundreds or even thousands of dollars in additional earnings over time.
- APY comparison: Look for accounts offering the highest money market account APYs to maximize your earnings. Online banks often provide higher APYs than traditional brick-and-mortar institutions.
- Minimum balance requirements: Check whether the account’s balance requirements align with your financial situation. Some accounts require $1,000 or more to avoid fees or earn the advertised yield.
- Fee structure: Review potential fees including monthly maintenance charges, excess withdrawal fees, transfer fees or early closure penalties. Look for accounts that waive fees with reasonable balance requirements.
- Access features: Consider how you’ll need to access your funds. Some accounts offer checks and debit cards, while others may limit withdrawal options. Verify how many withdrawals are allowed per statement cycle.
- Digital banking features: Evaluate the bank’s online banking platform and mobile app capabilities, including features like mobile check deposit, real-time balance updates and account alerts.
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What is the difference between a money market account vs. other accounts?
Understanding how money market accounts compare to other deposit and savings products helps you determine which account type best fits your financial needs and goals.
| Feature | Money market account | Savings account | Checking account | Certificate of deposit |
|---|---|---|---|---|
| Average APY | 0.47% | 0.61% | 0.18% | 1.65%-2.01% |
| Access | Checks, debit card, transfers | Transfers, ATM | Unlimited transactions | None until maturity |
| Transaction limits | Often limited (6/month) | Often limited (6/month) | Unlimited | None allowed |
| Minimum balance | Often high ($1,000+) | Often low ($0-$100) | Often low ($0-$100) | Varies ($500+) |
| Best for | Emergency funds, short-term goals | Long-term savings | Daily transactions | Fixed-term savings |
| FDIC insurance | Yes, up to $250,000 | Yes, up to $250,000 | Yes, up to $250,000 | Yes, up to $250,000 |
Money market vs. checking accounts: Money market accounts typically offer much higher interest rates than checking accounts but aren’t designed for unlimited daily transactions. They’re ideal for occasional access while earning interest.
Money market vs. savings accounts: Both pay interest and are designed for saving, but money market accounts often provide checks and debit cards for easier access. However, they typically require higher minimum balances.
Money market vs. CDs: Certificates of deposit may pay higher rates but lock up your money for specific terms. Money market accounts offer more liquidity for shorter-term needs and goals.
Money market accounts vs. money market mutual funds
While money market accounts and money market funds have similar names, they are very different. Most notably, money market funds are considered an investment because they are a type of mutual fund. They are not covered by FDIC insurance, and you could lose your principal. Here is a breakdown of their primary differences.
| Money market account | Money market fund |
|---|---|
| Bank deposit account | Investment/mutual fund |
| FDIC/NCUA insured up to $250,000 | No federal insurance |
| Principal guaranteed | Principal can fluctuate |
| Lower, stable returns | Potentially higher returns |
| Easy access via checks/debit cards | Access within one business day |
| Suitable for emergency funds | Better for parking investment cash |
Key distinction: Money market accounts are safe, insured deposit accounts perfect for emergency funds and short-term savings. Money market funds are investments that could lose value and aren’t suitable for money you can’t afford to lose.
FAQs about money market accounts
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Money market accounts work best for people who need a safe place to store emergency funds or short-term savings while earning competitive interest. They’re ideal if you want check-writing or debit card access to your savings without sacrificing too much earning potential.
However, they’re not suitable for long-term savings goals where CDs might offer better rates, or for daily spending where checking accounts provide unlimited transactions.
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Yes, interest earned on money market accounts is considered taxable income. The IRS requires you to report all taxable interest on your federal income tax return. If you earn more than $10 in interest, you’ll typically receive a Form 1099-INT from your bank to help with tax reporting.
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It depends on your bank’s policies. While the Federal Reserve no longer mandates the six-withdrawal limit, many institutions still enforce this restriction. Exceeding allowed withdrawals may result in fees or account reclassification. Always check your specific account terms.
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Money market rates change frequently, but top accounts currently offer APYs hovering around 4 percent APY. Online banks typically offer the most competitive rates. Check our regularly updated best money market account rates for current offerings.
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Both offer competitive interest rates, but money market accounts typically provide checks and debit card access for easier fund access. High-yield savings accounts may offer slightly better rates but usually don’t include transaction features. The best choice depends on whether you value access convenience or maximum yield.
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No, you cannot lose your principal in an FDIC or NCUA-insured money market account, up to the $250,000 insurance limit. However, if your account has fees that exceed your interest earnings, your balance could decrease. Also, inflation could erode your purchasing power over time if your interest rate doesn’t keep pace.
How to find the best money market account rates
The difference between an average money market account and a top-tier account can mean hundreds or thousands of dollars in additional earnings. Bankrate tracks rates from over 4,800 financial institutions daily to help you identify the best opportunities.
- Compare APYs regularly: Money market rates change frequently based on Federal Reserve policy and competition among banks. What’s competitive today may not be next month. Bankrate updates rate data daily to ensure you’re seeing current offers.
- Understand balance tiers: Many banks advertise their highest rate prominently, but that rate may only apply to balances above $25,000 or even $100,000. Always check what rate applies to YOUR specific balance level before opening an account.
- Consider online banks: Online-only banks consistently offer the highest money market rates — often 8-10 times the national average — because they have lower overhead costs than traditional banks. These institutions are FDIC-insured and provide the same federal protections.
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Bottom line
Money market accounts offer an excellent balance of safety, growth potential and accessibility for shorter-term savings goals. They’re particularly valuable for emergency funds, where you need the security of federal insurance and the flexibility to access funds when unexpected expenses arise.
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