How does a money market account work?

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A money market account is a financial product offered by banks and credit unions that allows you to safely store your funds while earning some interest. Money market accounts combine some features of checking and savings accounts.

Here’s what makes money market accounts unique and what you need to know to determine if they’re a good fit.

How do money market accounts work?

Money market accounts are similar to savings accounts, but they have some transactional features such as checking accounts. For example, a money market account may come with a debit card and checks. Money deposited into a money market account earns interest — an advantage over standard checking accounts, which typically don’t accrue interest on the account balance. Although more banks are offering high yield checking accounts.

Some money market accounts require a minimum deposit to open and may charge a fee if the balance falls below a specified minimum. It’s not unusual for the minimum balance requirement to be higher for these accounts than it is for checking and savings accounts.

Money can be added or withdrawn to a money market account, but depending on the bank or credit union, there may be a limit on the number of transactions permitted each statement period — typically six, the same as savings accounts.

Money market accounts pay a variable interest rate, so the rate consumers earn on their money can fluctuate over time. It’s common for these accounts to have tiered rates, meaning higher balances are rewarded with a higher annual percentage yield (APY). Money market accounts sometimes offer better yields than typical savings accounts, though higher rates means many banks are paying competitive rates on both of these accounts.

What are the advantages of money market accounts?

• The money you place in a money market account is insured for up to $250,000 per account owner and $500,000 for joint accounts at banks and credit unions that are federally insured.
• Money market accounts pay competitive interest rates. Take a look at the best money market accounts to see the current rates.
• Money market accounts can come with a debit card and/or checks, providing more ways to access cash than a savings account.

What are the disadvantages of money market accounts?

• A money market account may require a considerably larger deposit than a savings account. Frequently, accounts require $1,000 or more.
• A federal banking rule, known as Regulation D, historically limited withdrawals and transfers to six each statement cycle. The rule was revised in 2020 to eliminate the six-withdrawal limit, but some banks still impose it on money market (and savings) accounts, giving money market accounts less flexibility than standard checking accounts.
• Although money market accounts can sometimes offer a higher yield than a savings account, they don’t always. Be sure to shop around and compare options.

Who should have a money market account?

Money market accounts are best for those saving for short-term goals. For example, if you’re building an emergency fund, a money market account could be a good place to store that cash. But if you’re saving for retirement, then a certificate of deposit (CD) or retirement account would be a better fit.

“A money market can be appropriate for money you don’t need right away, but is also not appropriate for a long-term need you might invest for,” says Charles H. Thomas III, CFP, founder of Intrepid Eagle Finance. “Something like an emergency fund or rainy day fund could be an appropriate use for a money market.”

Many banks also offer money market accounts specifically for business owners. With a business money market account, you can earn interest on your funds. The minimum required balance for business accounts will typically be much higher than for a personal money market account.

Can you lose money in a money market account?

You won’t lose money in a money market account if you work with a financial institution that’s federally insured. The Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) insure money market and other accounts at member financial institutions for up to $250,000, so they’re protected should a financial institution fail.

While yields can fluctuate on a money market account, you can’t lose any money that’s already in the account, as you would with more volatile investments. Be sure not to confuse money market accounts with money market funds, which carry a bit more risk.

Bottom line

Though money market accounts and savings accounts both have withdrawal limits, money market accounts have some small differences that give them some more flexibility in terms of access to money. They usually come with checks and/or a debit card.

Money market accounts tend to have high APYs, as well, but they may also have higher fees and minimum requirements than checking or savings accounts. It’s worth reviewing some different money market account options to find the best APYs and lower fees.

–Bankrate editor Kristen Kuchar contributed to this article. Freelance writer Sarah Sharkey contributed to a previous version of this article.