What a money market account is
A money market account is a savings account that pays interest and lets you write checks or make transfers, but limits how often you can withdraw money each month. Banks and credit unions offer them. The interest rate is usually higher than a regular savings account but lower than a certificate of deposit (CD). You have to keep a minimum balance—often $2,500 to $25,000, depending on the bank—or you pay a monthly fee or lose the higher rate.
The account sits between a checking account and a savings account. You get some of the flexibility of checking (you can usually write a few checks per month or make transfers) but you also get the higher interest of savings. The tradeoff is that the bank limits your withdrawals. Federal rules once capped withdrawals at six per month, but that rule was suspended in 2020 and has not been reinstated, so limits now vary by bank.
Key Takeaways
- Money market accounts pay higher interest than regular savings accounts but require you to keep a minimum balance, usually between $2,500 and $25,000.
- You can write checks and make transfers from a money market account, but the bank may limit how many withdrawals you make per month.
- The interest rate on a money market account changes with market conditions and is not locked in like it is with a CD.
- If your balance drops below the minimum, you typically pay a monthly fee or lose the promotional interest rate.
- Money market accounts are FDIC-insured at banks and NCUA-insured at credit unions, protecting your money up to $250,000.
How the interest rate works
Money market accounts offer a variable interest rate, meaning the rate can go up or down. The bank sets the rate based on what the Federal Reserve does with its benchmark interest rate. When the Fed raises rates, banks usually raise the rates on money market accounts. When the Fed cuts rates, banks cut them too. This happens within days or weeks, not months.
The rate you see advertised is the annual percentage yield (APY). That is the total return you will earn in one year if you do not withdraw money and the rate stays the same. If you deposit $10,000 at 4.50% APY, you earn roughly $450 in one year (before any fees). The actual amount depends on how often the bank compounds interest—daily, monthly, or quarterly—but the APY already accounts for that.
Banks compete for deposits by offering higher rates on money market accounts. Online banks often pay more than brick-and-mortar banks because they have lower overhead. Rates change frequently, so the rate you lock in today may be higher or lower than what new customers see next week. You do not have to renegotiate or sign anything when the rate changes—it just happens to your account.
Minimum balance requirements and fees
Most money market accounts require you to keep a minimum balance. Common minimums are $2,500, $5,000, $10,000, or $25,000. If your balance falls below the minimum, the bank usually charges a monthly maintenance fee (often $10 to $25) or drops your interest rate to a much lower one. Some banks waive the minimum if you set up automatic deposits or link the account to direct deposit.
Beyond the minimum, watch for other fees. Some banks charge a fee if you exceed the withdrawal limit in a month. Some charge a fee to close the account early. Some charge an inactivity fee if you do not use the account for a set period. Read the account agreement before you open it—the fee structure varies widely between banks.
Withdrawal limits and how they work
Federal rules no longer cap withdrawals at six per month, but individual banks still set their own limits. Some allow unlimited withdrawals. Others limit you to three to six per month before charging a fee. The limit usually applies to transfers and checks, but not to ATM withdrawals at the bank's own machines.
If you need to withdraw money frequently, a money market account may not be the right fit. A regular savings account or checking account gives you unlimited access. If you want to park money for several months and only touch it occasionally, a money market account works well. If you know you will not need the money for a year or more, a CD usually pays more interest.
Money market accounts versus other savings products
| Account Type | Interest Rate | Minimum Balance | Withdrawal Limits | Best For |
|---|---|---|---|---|
| Regular Savings Account | 0.01% to 0.50% APY | Often $0 to $500 | Unlimited | Easy access, no fees |
| Money Market Account | 4.00% to 5.35% APY (varies) | $2,500 to $25,000 | Limited (3 to 6 per month, varies by bank) | Higher interest, occasional access |
| Certificate of Deposit (CD) | 4.50% to 5.50% APY (varies) | Often $500 to $2,500 | None until maturity | Locked-in rate, no access for months or years |
| High-Yield Savings Account | 4.00% to 5.35% APY (varies) | Often $0 to $500 | Unlimited | High interest, full access |
A high-yield savings account often pays the same rate as a money market account but with no minimum balance and unlimited withdrawals. The main reason to choose a money market account over a high-yield savings account is if you want the option to write checks. If you do not need checks, a high-yield savings account is usually simpler.
FDIC insurance and account safety
Money market accounts at banks are covered by FDIC insurance up to $250,000 per depositor, per bank. If the bank fails, the FDIC pays you back. Money market accounts at credit unions are covered by NCUA insurance, also up to $250,000. This protection applies to the account balance, not the interest you earn.
If you have more than $250,000, you can open accounts at multiple banks to keep all your money insured. For example, $250,000 at Bank A and $250,000 at Bank B are both fully covered. The FDIC counts each bank separately, not each account type, so if you have a checking account and a money market account at the same bank, they share the $250,000 limit.
When a money market account makes sense
A money market account works well if you have money you want to earn interest on but may need to access in the next few months to a year. It also works if you want higher interest than a regular savings account but do not want to lock money into a CD. The higher rate compensates for the withdrawal limits and minimum balance requirement.
A money market account does not make sense if you need to withdraw money frequently, if you cannot meet the minimum balance, or if you are willing to lock money away for a set term (in which case a CD usually pays more). It also does not make sense if you can get the same rate with no minimum and unlimited withdrawals at a high-yield savings account—and you often can.
Frequently Asked Questions
Can I write checks from a money market account?
Most money market accounts come with check-writing privileges, but the bank usually limits how many checks you can write per month (often three to six). Some banks charge a fee if you exceed the limit. Read your account agreement to see what your bank allows.
What happens if my balance drops below the minimum?
The bank typically charges a monthly maintenance fee (usually $10 to $25) or drops your interest rate to a much lower one. Some banks do both. If you know your balance will fall below the minimum temporarily, call the bank and ask if they can waive the fee or lower the minimum for a month.
Is the interest rate may provide?
No. Money market account rates are variable, meaning the bank can change them at any time. The rate you see today may be different next month. If you want a rate locked in for a set period, a CD is the right product.
How is interest calculated and paid?
Interest is usually compounded daily and paid monthly. That means the bank calculates how much interest you earned each day, adds it to your balance, and then pays you the total at the end of the month. The APY already accounts for compounding, so you do not have to do the math yourself.
Can I lose money in a money market account?
No. The bank pays you interest; you do not invest in the market. Your balance can only go up (as interest is added) or down (as you withdraw). The account is FDIC-insured, so even if the bank fails, your money is protected up to $250,000.