What is a money market account?

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What is a money market account?

A money market account is an interest-bearing account that you can open at banks and credit unions. They are very similar to savings accounts, but they offer some checking account features as well. Money market accounts are different from money market mutual funds.

Money market accounts pay competitive rates and are a safe place to save your money. You may want to open a money market account if you want a predictable yield and a federally insured account.

Money market accounts support more ways to move money out of the account than savings accounts. However, you aren’t supposed to use a money market account like a checking account. You are also limited to six withdrawals from a money market account each month, just as there are limits to moving money out of a savings account. Money market accounts may require bigger minimum deposits and balances compared to savings accounts.

Pros and cons of money market accounts

There are always exceptions and no product is flawless. Make sure to understand the trade-offs.

Advantages

  • You can earn interest: Right now, the best money market accounts pay around 0.6 percent.
  • Your deposits are insured: Your money is insured up to $250,000 per account owner with accounts at a bank or credit union.
  • Your cash is accessible: Your account often comes with a debit card and/or physical checks.

Disadvantages

  • Large minimum deposit requirements: Money market accounts may require a larger deposit than traditional savings accounts.
  • Lower yields than other bank products: Certificates of deposit may pay a more competitive yield.
  • There are restrictions on withdrawals: While you might write checks or use a debit card to move money out of your money market account, there are limits because of a federal mandate.

How do I choose the best money market account?

First and foremost, you should shop around. Start your search at your local bank or credit union, but also expand your search to online banks. Online institutions tend to offer higher rates.

As you do your research, one of the most important factors to consider is the money market account’s annual percentage yield. The annual percentage yield, or APY, indicates how much you will earn with compound interest over the year. In other words, it’s the interest earned on your first deposit as well as the interest earned on top of other interest earnings. The higher the number, the more your money will grow.

Next, review any account restrictions. Check to see whether the money market account requirements make it too difficult to earn the yield or to sidestep a fee. It’s not uncommon to see large balance requirements, such as $25,000.

Also, make sure to look for fees, including whether the account charges a penalty if you close it within three months of opening. Look out for monthly fees, transfer fees, shipping fees, inactive account fees and other penalties.

What is the difference between a money market account vs. other accounts

Money market account vs. checking account

While money market accounts may offer check-writing privileges, these accounts aren’t designed to be used like checking accounts. Under a federal mandate, you will have a limit on how many times you can withdraw money from these accounts. The best money market account rates are much higher than checking accounts, however.

Money market account vs. savings account

Savings accounts and money market accounts have more in common than not: They pay interest, and they are designed to keep you saving. But there are a few distinctions. Generally, you will have to park more money in a money market account than you will in a savings account. With a money market account, you can get checks. Don’t expect this tool in your savings account.

Money market account vs. CDs

A CD could pay you a more competitive rate than a money market account, but your money is more liquid in a money market account than in a CD. If you are deciding between a money market account and a CD, evaluate your goals before moving ahead.

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

While money market accounts and money market funds have similar names, they are very different. Most notably, money market funds offer no FDIC insurance, and you could lose your principal. Here is a breakdown on their primary differences.

Money market account Money market fund
Purpose of account For your emergency fund or shorter-term savings goals Often for individual investors who are seeking a parking spot for their cash
How to invest Deposit money at a financial institution online or in person Buy shares at a brokerage, bank or a mutual fund company
Accessing funds Can withdraw money up to six times per month You have ready access to cash. You can even get it same day
Insurance coverage Up to $250,000 per bank or credit union customer No FDIC or NCUSIF insurance (even when you buy them through a bank)

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Written by
Mary Wisniewski
Banking editor
Mary Wisniewski is a banking editor for Bankrate. She oversees editorial coverage of savings and mobile banking articles as well as personal finance courses.  
Edited by
Senior editorial director
Reviewed by
Kenneth Chavis IV
Senior wealth manager, LourdMurray