What Is a Money Market Account? [Mar. 2023 Guide]

A money market account is an interest-earning savings account, with some features of a checking account.

Saving money is the best way to prepare for unexpected life events and take control of your finances. But where is the best place to save your money?

If you’ve been researching different savings accounts, you may have wondered, “What is a money market account?” at some point. As of March 2023, interest rates for money market accounts are up to 4.45%,which is higher than normal.

Keep reading for a money market account definition, its benefits, and how it stacks up to other kinds of accounts.

What Is a Money Market Account?

A money market account (MMA) is a type of savings account that earns interest at a bank or credit union. They are sometimes called money market deposit accounts (MMDAs).

MMA interest rates are usually higher than regular savings accounts and have some features of a checking account, like debit card and check-writing privileges, though there are more restrictions.

How Does a Money Market Account Work?

Money market accounts pay more competitive interest rates than a traditional savings account, with more access to your money than a high-yield savings account. They may also require a larger minimum deposit and balance than a traditional savings account.

As a hybrid between a savings and checking account, money market accounts have some unique features.

Interest: The interest rate offered by MMAs is typically higher than regular savings accounts. It is a variable rate, meaning it changes as the market changes.
Access to your money: Some MMAs come with a debit card and/or checks that you can use to make limited purchases.
Minimum balance: Money market accounts may have a required minimum balance, ranging from $0-$25,000. Each bank has different requirements, and they may scale for getting certain APYs.

Although money market accounts have some features of a checking account, they aren’t meant to be used as a replacement for a traditional checking account.

This is because money market accounts often limit you to six transactions per month. This includes withdrawals or payments by check, debit card, draft, or electronic transfer.

However, you can usually make an unlimited number of transactions in person or by ATM, mail, messenger, or telephone check.

Benefits of Money Market Accounts

Money market accounts are great for short-term savings goals, like an emergency fund. You’ll earn a higher interest rate than standard savings accounts while still being able to easily access your money if needed.

However, this type of account comes with its own set of restrictions. If you’re considering opening a money market account, consider these pros and cons.

Pros of Money Market Accounts:

Higher interest rates than traditional savings accounts
Safe place to keep money with insurance up to $250,000 per account owner
More access to your money than other savings accounts with debit card and check features

Cons of Money Market Accounts:

Lower interest rates than other accounts like high-yield savings accounts or CDs
Requires a higher minimum deposit and balance than traditional savings accounts
Monthly limit on number of transactions

Remember that every financial situation is different, and while a money market account may work well for one person, it may not be a good fit for another.

Money Market Account vs. Other Accounts

Money market account features overlap with different types of savings and checking accounts. The differences between these accounts may be important depending on your financial goals.

If you’re not sure if a money market account is best for you, see how they compare to other accounts.

Money market accounts vs. other accounts

Standard Savings Accounts

Interest type: Variable

Higher interest rates: No

Insured: Yes

Debit card/checks available: No

Minimum deposit/balance: Yes

The biggest difference between money market accounts and traditional savings accounts is access to a debit card and checks with an MMA.

Money market accounts also generally offer a higher interest rate than savings accounts. In February 2023, the average interest rate for an MMA was 0.48% and 0.35% for a traditional savings account, according to the Federal Deposit Insurance Corporation (FDIC). However, some banks like Discover and Ally are offering up to 3.4% on their MMAs.

The difference is not always that substantial, as MMA interest rates vary with the market. If you find that the interest rate for an MMA isn’t that much higher than your standard savings account, it may not be worth the higher minimum deposit and balance requirements.

High-yield Savings Accounts

Interest type: Variable

Higher interest rates: Yes

Insured: Yes

Debit card/checks available: No

Minimum deposit/balance: Yes

Money market accounts and high-yield savings accounts are very similar. Both offer higher interest rates than standard savings accounts and are insured. In March 2023, MMA and high-yield savings account interest rates were comparable.

One main difference is the addition of debit cards and checkbooks with an MMA, allowing you more access to your money than a high-yield savings account.

If you’re torn between the two options, make sure to compare interest rates, minimum deposit and balance requirements, potential fees, and transaction limits.

Checking Accounts

Interest type: Variable (or none)

Higher interest rates: No

Insured: Yes

Debit card/checks available: Yes (unlimited)

Minimum deposit/balance: Yes

While money market accounts have some features of checking accounts, they aren’t meant to replace a checking account. You still need a checking account for daily expenses, since MMAs are usually capped at six transactions per month.

Additionally, most checking accounts don’t earn interest, and if they do it’s a very low rate. These accounts work best when used together—one can’t replace the other.

Certificates of Deposit (CD)

Interest type: Fixed

Higher interest rates: Yes

Insured: Yes

Debit card/checks available: No

Minimum deposit/balance: Yes

A certificate of deposit (CD) and a money market account are both insured savings accounts that earn higher interest rates than standard savings accounts.

In fact, CDs can earn even higher interest rates than MMAs. They also have fixed interest rates, meaning your money will earn the same amount of interest during its life cycle.

In February 2023, the FDIC reported an average interest rate of 1.36% for a 12-month CD, with banks like Marcus by Goldman Sachs and Discover offering up to 4.5%.

However, the money you put into a CD gets locked up for a set period of time, usually months or even years. If you withdraw money early, you have to pay a penalty. This makes it the least flexible savings account option.

If you have extra money you’d like to safely invest, a CD is a great option. But if you prefer more accessibility to your money, a money market account is the better choice.

Money Market Funds

Interest type: Variable

Higher interest rates: Yes

Insured: No

Debit card/checks available: No

Minimum deposit/balance: Yes

It’s easy to get money market accounts and money market funds confused, or even think they’re the same thing. In reality, these accounts are very different.

Money market funds are offered by investment funds, not government securities like MMAs. This means while money market funds may have a higher interest rate, they’re not insured by the FDIC or the National Credit Union Administration (NCUA), so you could potentially lose money.

You will also have less access to your money with money market funds and may have to pay monthly maintenance or management fees.

Investing in a money market fund may be a good idea for someone who already has a large amount of savings built up in other accounts and is ready to diversify their assets.

Money Market Account FAQ

Still have questions about money market accounts? Check out the answers to these frequently asked questions regarding MMAs.

What Is the Interest Rate for a Money Market Account?

Money market account interest rates in February 2023 were 0.48% on average, but some banks are currently offering up to 3.4%. The interest rate on MMAs is variable, which means it can change depending on the market.

Are Money Market Accounts Safe?

Yes, money market accounts are a safe place to save your money. They are insured through your bank or credit union by either the FDIC or the NCUA.

Your money is insured up to $250,000 per depositor per account ownership category by both the FDIC and NCUA.

What Is the Typical Minimum Balance for a Money Market Account?

The minimum balance required for a money market account depends on the bank or credit union. Minimum balance requirements could be anywhere from $0 to $25,000 depending on the bank or current promotion.

Generally, you can expect MMAs to require a higher minimum balance than standard savings accounts, but you may be able to find an account with no balance requirements.

Some banks have one requirement for avoiding fees and another for securing a specific interest rate. Compare rates from different banks to find the best deal.

Is a Money Market Account a Savings Account?

Yes, a money market account is a type of savings account with certain privileges of a checking account, like a debit card and checkbook.

Money market accounts are a great way to safely earn interest while working toward a short-term savings goal. If you’re not sure that a money market account is a perfect fit for your savings goals, compare high-interest savings accounts.