Money Market Account

What is a money market account (MMA)?

A money market account is a deposit account offered by banks and credit unions that combines features of savings and checking accounts. It earns interest like a savings account but often provides easier access to funds through check-writing and a debit card. MMAs are deposit accounts and are typically insured by the FDIC (banks) or NCUA (credit unions).

How MMAs work

• Interest: MMAs pay interest (APY) that is usually variable. Compounding frequency (daily, monthly, etc.) varies by institution and affects overall returns.
• Access: Most MMAs include a debit card and check-writing privileges, making them convenient for payments and ATM withdrawals.
• Deposits and withdrawals: Deposits are generally unlimited. Many banks limit certain types of withdrawals or transfers (historically capped at six per month for some transaction types), and some still enforce similar limits or fees.
• Insurance: Deposits are insured up to applicable limits by the FDIC or NCUA.

Key features and typical requirements

• Interest rates: Often higher than standard savings accounts; top MMAs can sometimes offer very competitive rates depending on market conditions.
• Minimums and fees: Banks may require a minimum balance or minimum opening deposit (commonly a few thousand dollars at some institutions) and may charge fees for falling below the required balance or for excess withdrawals.
• Rate variability: MMA APYs are not fixed; they can rise or fall with market conditions.
• Insurance limits: FDIC/NCUA insurance generally covers up to $250,000 per depositor, per ownership category, per institution. Joint accounts usually enjoy higher combined coverage.

Pros and cons

Pros
– Potentially higher APYs than standard savings accounts.
– Check-writing and debit card access for easier spending and withdrawals.
– Deposit insurance protection (FDIC/NCUA).

Cons
– Variable interest rates — no guaranteed return.
– Transaction limits or restrictions on certain transfers.
– Minimum-balance requirements and possible fees.
– Excess withdrawal or overdraft fees at some institutions.

How MMAs compare with other accounts

• Savings account: MMAs generally offer higher interest and more transactional access (checks/debit) than regular savings, making them better for accessible short-term savings.
• High-yield savings: These can offer APYs comparable to or higher than MMAs but often lack physical check-writing or debit-card features.
• Checking account: Checking accounts provide unlimited transactions and are designed for daily use, but they typically pay much lower interest than MMAs.
• High-yield/rewards checking: These can rival MMA rates but may require meeting transaction or balance conditions to earn top yields.
• Certificate of deposit (CD): CDs lock funds for a fixed term in exchange for a guaranteed, often higher, fixed rate. Early withdrawals usually incur penalties.
• Money market mutual fund: Offered by brokerages, these invest in low-risk securities and may yield higher returns than MMAs but are not FDIC/NCUA-insured.

Best uses

• Short-term goals (vacations, car down payments).
• Emergency or rainy-day funds where some access and higher yield matter.
• Situations where you want a mix of savings growth and occasional check/debit access.

When not to use an MMA

• Long-term retirement savings — investment accounts such as IRAs and 401(k)s typically offer higher long-term returns.
• If you need daily unlimited transactions without balance or withdrawal restrictions (use a checking account).

Bottom line

A money market account is a useful hybrid between a savings and checking account: it can earn higher interest than a standard savings account while providing convenient access through checks and debit cards. MMAs are well suited for short-term savings and emergency funds, but they carry variable rates, possible minimums, and withdrawal limits. For long-term investing and retirement goals, dedicated investment accounts are generally a better choice.