A money market account is a hybrid between a savings account and a checking account, held at a bank or credit union

A money market account combines features from two different account types. Like a savings account, it earns interest on the balance you keep in it. Like a checking account, it gives you limited ability to withdraw money and write checks. The trade-off is that you earn more interest than a standard savings account, but you cannot withdraw money as freely as you can from a checking account.

The account sits at a bank or credit union and is insured by the FDIC (if it is at a bank) or the NCUA (if it is at a credit union), up to $250,000 per depositor. That insurance means if the institution fails, your money is protected up to that limit.

Key Takeaways

  • Money market accounts earn interest that is usually higher than a regular savings account but lower than a certificate of deposit.
  • Most accounts limit you to six withdrawals per month, with penalties if you exceed that number.
  • The interest rate changes based on what the Federal Reserve does with its benchmark rate, so your earnings go up and down over time.
  • You can usually write checks or use a debit card, but not as freely as with a checking account.
  • The minimum balance required to open one varies by bank, from zero to several thousand dollars.

How the interest rate works and why it changes

When you deposit money into a money market account, the bank pays you interest on that balance. The rate the bank offers is not fixed — it moves up and down based on what the Federal Reserve does with its benchmark interest rate. When the Fed raises rates, banks typically raise the rates they pay on money market accounts. When the Fed lowers rates, the rates on these accounts fall.

The bank sets its own rate within that environment, so different banks offer different rates even when the Fed rate is the same. You can shop around and find banks offering higher rates than others. Online banks often offer higher rates than brick-and-mortar banks because they have lower overhead costs.

Interest is usually compounded daily and deposited monthly, meaning you earn interest on the interest you already earned. The exact compounding schedule depends on the bank's terms.

Withdrawal limits and how they affect your money

Most money market accounts limit you to six withdrawals per month. This limit comes from a federal regulation, though some banks enforce it more strictly than others. Withdrawals include transfers to another account, checks you write, and debit card transactions.

If you exceed the limit, the bank may charge a fee per excess withdrawal, typically $10 to $25. Some banks will refuse the withdrawal or close the account if you repeatedly go over the limit. A few banks have removed the limit entirely, though these are less common.

This withdrawal restriction is the main reason a money market account is not a replacement for a checking account. If you need to move money in and out frequently, a checking account is the better choice.

Minimum balance requirements and opening an account

The minimum balance needed to open a money market account varies widely. Some banks require nothing — you can open with $1. Others require $2,500, $10,000, or more. A few banks waive the minimum if you set up automatic deposits or maintain a certain account balance.

If you fall below the minimum, the bank may charge a monthly fee, reduce your interest rate, or close the account. Read the account terms carefully before opening to understand what happens if your balance drops.

Online banks tend to have lower or no minimums because they serve customers nationwide and do not have branch costs. Credit unions may have membership requirements in addition to the account minimum.

How money market accounts compare to other savings options

A money market account sits between a regular savings account and a certificate of deposit in terms of interest rate and flexibility. A savings account usually earns less interest but lets you withdraw money whenever you want. A CD earns more interest but locks your money away for a set period — three months, one year, five years — and charges a penalty if you withdraw early.

A money market account offers a middle ground: higher interest than savings, but you can still access your money (within the six-withdrawal limit). This makes it useful for an emergency fund or money you want to grow but might need within the next few months.

A checking account earns little to no interest but gives you unlimited withdrawals and the ability to write checks. If you need both interest and frequent access, you might keep a money market account for savings and a checking account for daily spending.

What happens to your money when interest rates fall

When the Federal Reserve lowers its benchmark rate, banks lower the rates they pay on money market accounts. Your interest earnings shrink, sometimes significantly. If you opened an account when rates were high, you may see your rate drop by 1% or more within months.

This is why it makes sense to shop around periodically. If your current bank drops its rate but another bank is offering a higher rate, you can move your money. There is no penalty for closing a money market account and opening one elsewhere.

Some people use money market accounts as a temporary home for money while they decide what to do with it. If rates are high, they keep money in the account. If rates fall and stay low, they might move the money into a CD or a different investment.

Fees and what to watch for

Common fees on money market accounts include monthly maintenance fees (usually $5 to $15), excess withdrawal fees ($10 to $25 per withdrawal over the limit), and fees for falling below the minimum balance. Some banks also charge fees for closing the account within a certain period, though this is less common.

Read the fee schedule before opening. Some banks advertise a high interest rate but charge fees that eat into your earnings. A bank with a slightly lower rate but no fees may actually pay you more.

Online banks typically have fewer fees than traditional banks. Credit unions often have lower fees as well, especially if you are a member.

Frequently Asked Questions

Can I use a money market account like a checking account?

Partially. Most money market accounts come with a debit card and checkbook, so you can make purchases and write checks. However, you are limited to six withdrawals per month. If you need unlimited access to your money, a checking account is the better choice.

What is the difference between a money market account and a money market fund?

A money market account is a bank or credit union product insured by the FDIC or NCUA. A money market fund is an investment product sold by brokerages and mutual fund companies, not insured, and carries more risk. They are different products despite the similar names.

Will my interest rate stay the same?

No. The rate changes based on what the Federal Reserve does and what your bank decides to offer. You can expect the rate to move up and down over time. Some banks change rates monthly, others less frequently.

What happens if the bank fails?

Your money is protected up to $250,000 by the FDIC (at a bank) or NCUA (at a credit union). If the institution fails, the insurance agency steps in and returns your money. Amounts over $250,000 are not protected.

Can I withdraw all my money at once?

Yes, but it counts as one withdrawal against your six-withdrawal limit. If you need to move a large amount out, you can do it, but you will not be able to make five more withdrawals that month without paying a fee.