A Guide to Money Market Accounts

Money market deposit accounts may help your savings grow quicker than a traditional savings account.

You’re not alone if you feel like you aren’t saving enough. The average person saves just over 4% of their disposable income annually, meaning if you make $100,000 per year, you’re only setting aside about $4,000 each year.¹

But how can you encourage yourself to save more? A good first step could be to find the right savings account for you.

There are many types of savings accounts out there. You may have heard of a high-yield savings account, which could be a great option to help grow your money.

Another potential option is a money market account. These accounts earn interest like savings accounts but function as a hybrid between a savings and a checking account.

Wondering if a money market is suitable for your savings goals? Let’s look at how it works and what to expect when you open one.

Key Takeaways

• Money market accounts typically earn higher rates than traditional checking or savings accounts.

• Money markets often have monthly withdrawal limits set by the financial institution.

• Money market deposit accounts through a chartered bank are typically FDIC-insured, giving you greater peace of mind that your money is safe.

What Is a Money Market Account?

A money market deposit account (MMDA) is a type of deposit account that earns interest, usually at a higher rate than a traditional savings account.

MMDA rates are listed as an Annual Percentage Yield (APY), which refers to the amount of interest the account may earn over the course of the year using compounded interest in the calculation. The higher the APY, the more the account may earn.

While MMDAs earn a higher rate than traditional savings accounts, they tend to have far lower rates than high-yield savings accounts. Many high-yield savings accounts have rates more than 10x traditional savings accounts.²

Unlike high-yield or traditional savings accounts, MMDAs often come with check-writing privileges or let you use a debit card to withdraw funds each month, up to certain limits. Most institutions limit withdrawals or transfers from MMDAs to six per month.³

It’s common to have a checking account in addition to an MMDA to ensure that you’re able to pay all of your bills without exceeding withdrawal limits.

Common Fees to Watch For

Each financial institution sets their own requirements and fees for MMDAs. Still, many impose a minimum deposit to open the account in the first place, which varies from institution to institution.

Additionally, your bank may charge maintenance fees, check-writing fees, and fees for letting the balance drop below the bank’s specified minimum balance requirement.⁴

It’s a good idea to read up on the terms of each money market account you’re interested in before making your initial deposit. Make sure you’re comfortable with any fees you may have to pay, the balance requirements in place, and other factors. If you’re uncomfortable with the terms at one bank, you may want to keep looking.

Where to Find Money Market Deposit Accounts

MMDAs are available at many financial institutions, including banks and credit unions. If the institution is an FDIC or NCUA member, MMDAs are FDIC insured or NCUA insured up to legal limits, which are $250,000 per depositor, per ownership type, per institution.⁵

Money Market Mutual Funds

In addition to MMDAs, you may also see money market mutual funds (MMMFs) through brokerage firms. Despite the similarity in their names, MMMFs are an investment account, not a savings account.

Since they’re investment accounts, MMMFs aren’t FDIC or NCUA-insured, and they may lose value as the market fluctuates.⁶ If you’re interested in adding an MMMF to your portfolio, discuss your situation with a financial advisor.

Money Markets vs. Savings and Checking Accounts

As mentioned earlier, MMDAs may help grow your savings. While these accounts share some qualities with savings and checking accounts, there are some key differences you should know about.

Interest rates, expressed as an Annual Percentage Yield (APY), are clearly a high priority in account shopping, and rates vary by bank. When reviewing average rates from September 2024, the lowest rates in the market were checking accounts, followed by traditional savings.⁷ Average MMDA rates settled slightly higher than traditional savings and only a few challenged rates for the average high-yield savings.⁸˒⁹˒¹⁰

The chart below compares MMDA features, beyond rates, with other account types potentially offered through a chartered bank.

* If held at a chartered bank

Pros and Cons of Money Market Deposit Accounts

Money market accounts offer some unique benefits that other account types may not provide to the same extent. But that doesn’t mean they’re perfect. Before you start looking for an MMDA, it’s helpful to understand the pros and cons you may experience.¹²

The Pros of Money Market Accounts

Here are some of the benefits you may see by opening an MMDA:

• Potentially higher returns: Money market accounts may earn higher APYs than are available on traditional savings accounts and checking accounts.

• Easy access to the money: With MMDAs, you’re able to access the funds as needed up to the withdrawal limits of the account.

• FDIC insurance: When you open an account at a chartered bank or financial institution, your account is FDIC-insured. If anything happens to the bank, your money is protected up to legal limits.

The Cons of Money Market Accounts

Here are some of the disadvantages you may see when you open an MMDA:

• Minimum balance requirements: Many financial institutions set minimum balance requirements for MMDAs. If your balance drops below that level, you could have to pay a fee.

• Maintenance fees: Most financial institutions charge maintenance fees on these accounts. The fees vary, but you may be able to waive the fees by setting up automatic transfers or direct deposit transfers to the account monthly.

• Potentially lower rates than other account types: MMDAs may not have the highest rates available. You may be able to find better rates by opening a high-yield savings account or investing your money in stocks, bonds, and other traditional investments.

Is a Money Market Deposit Account Right for You?

MMDAs offer a flexible way to grow your wealth over time but also come with a few restrictions.

Here are a few considerations to keep in mind when deciding if an MMDA is right for you.

• Evaluate your savings style: If you routinely leave a savings buffer in your checking account and only write a few checks each month, opening an MMDA may be a great way to put that bit of savings to work. You could earn a higher rate than in your checking account but still have the convenience of some check writing.

• Consider your access needs: Before opening an MMDA, consider how often you may need the funds. If you’re looking for an account where you could access the funds when necessary, but want to reduce the temptation to do so, an MMDA may be a good choice.However, if you need more liquidity, a high-yield savings account without withdrawal limits may offer you a better APY to make your money work harder and give you more flexibility.

• Assess how you spend: MMDAs usually come with check-writing privileges, but many have withdrawal limits. If checks are part of your regular spending, this account type may not work well for you as a substitute for a checking account.

As always, consult a financial advisor to discuss your specific financial situation. They’ll help you determine which account type is best for your financial situation and your long-term goals.

Final Thoughts

MMDAs give you a simple way to save money while earning higher rates than you’d find with a traditional checking or savings account. They also come with a few unique features that savings accounts usually don’t have, such as writing checks.

If you’re still wondering if a MMDA is the right savings tool for you, learn more about how to choose the right savings account for your needs and goals.