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What's a money market account? How an MMA works to complement your savings strategy

Kelly Suzan Waggoner
Updated
What is a money market account? (Richard Drury via Getty Images)

With the Federal Reserve on June 12 holding its benchmark interest rate unchanged at a 23-year high, it's an ideal time to consider new opportunities to grow your nest egg at high APYs expected to last throughout the summer.

A money market account — or MMA — is a type of savings account that combines high rates of return on your money with a few limited, but useful, benefits of a checking account. These safe, stable accounts offer interest rates that rival those of high-yield savings accounts — up to 10 times that of the national 0.45% average for traditional savings accounts. And you can open an MMA at most banks and credit unions, with the highest rates found on digital accounts and at online banks.

In the wake of the pandemic, limitations on MMA deposits, balances and withdrawals are more relaxed, evening out the quirks of these accounts you can use to reach a short-term goal, build emergency reserves for a rainy day or complement your overall savings strategy.

A money market account is a type of interest-bearing account that combines the best of a high-yield savings account with the features of a checking account. MMAs offer rates of 4% APY or higher, which make them a lot like other high-yield accounts that can grow your money more quickly than with an everyday savings account. Unlike an HYSA, money market accounts often come with a debit card and check-writing privileges that open up ways to swipe for purchases, pay bills or move your money — though transactions might be limited, depending on the account.

Some MMAs come with tiered rates that pay you a different APY depending on your total account balance — effectively, the higher your balance, the stronger your rate of return. And you could be required to maintain a high balance to even open an MMA or avoid fees (yet in today’s competitive high-rate environment, you can find MMAs with minimums of under $500).

As with other deposit accounts, MMAs are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

A money market account works like your typical savings account: You deposit money into your account, and your deposit attracts an interest rate that compounds daily or monthly. The interest rate on an MMA is variable, meaning it can fluctuate depending on market conditions, like a traditional savings account.

Most banks or credit unions offer money market accounts, however banks and accounts that operate fully online tend to extend the strongest rates on your investment, passing along overhead savings in the form of high APYs. These FDIC-insured banks and MMAs often partner with nationwide ATM networks and allow you to link everyday accounts for convenient banking.

And while federal Regulation D requirements used to limit withdrawals and transfers from MMAs — including checks and debit card purchases — to six per month, the Federal Reserve lifted that limitation during the pandemic, resulting in flexible access to your money without penalties or fees on most accounts. Still, it’s a good idea to have a traditional checking account as backup for everyday money needs.

  • High rates of return. Interest rates are competitive with high-yield savings accounts — substantially higher than you’ll earn with a traditional account.

  • Flexible access to cash. Unlike CDs, you can withdraw or move the money in your MMA if you need it without penalty.

  • Debit and check-writing privileges. Most MMAs offer a debit card and checks, which can be useful for general banking.

  • Deposits are insured. Money market accounts are insured by the FDIC or NCUA for up to $250,000 per person, per account.

Dig deeper: High-yield savings account vs. traditional savings account: Why it’s worth the switch

  • Not best for everyday banking. Some MMAs limit withdrawals to six a month, which means you’ll need a traditional checking account for more regular transactions.

  • Might require minimums. MMAs might require a minimum deposit or high monthly balance to avoid fees.

  • Earnings could be tiered. An MMA may come with tiered APYs, with higher rates determined by your monthly balance.

The higher the interest rate, the stronger your savings potential. Yet money market accounts come with variable rates that can fluctuate with the market, which means you’ll want to consider more than just the APY. When comparing MMAs, weigh your savings goals against such factors that include:

  • Promotional rates. Some MMAs offer promotional or tiered rates that require high minimums. Read the fine print to make sure you can comfortably meet any requirements to earn the highest advertised rates.

  • Low or no fees. The best MMAs won’t require unreasonable minimum deposits or balances to earn high APYs, though make sure to understand whether your account charges maintenance, withdrawal, inactivity and other fees — and how you can avoid them.

  • Ease of access to your money. Look for an MMA that offers debit and checking flexibility, as well as ATMs or mobile apps for money transfers. If you prefer in-person banking, start your research with accounts at neighborhood branches.

  • Safety and protections. Like other deposit accounts, MMAs are federally insured for up to $250,000 per account, which means your money is safe. Look for terms like “member FDIC,” “FDIC insured” or “NCUA insured.”

A money market account is a secure, low-risk way to plan for a family holiday, save toward retirement or build an emergency fund, but it isn’t the only way to earn high yields on your savings — and outpace traditional savings accounts:

  • High-yield savings account. Opening an HYSA is a way to quickly grow your savings investment at variable rates of up to 5% APY or higher, depending on the account.

  • High-yield checking account. A high-yield checking account is like a money market account in that it combines high APYs with checking benefits, though with unlimited debit and check-writing privileges you won't find with an MMA.

  • Certificate of deposit. A CD guarantees a high fixed rate of return on a principal deposit in exchange for locking access to your money through an agreed-on term. A short-term CD ladder can be a way to leverage high rates with rolling returns while interest rates are strong.

  • Money market mutual fund. While it sounds similar to a money market account, this type of fund offered by brokerage accounts and investment platforms invests in low-risk, short-term debt securities with protections under the Securities Investor Protection Corporation.

Dig deeper: High-yield savings account vs. money market account: Which is best for growing your savings?

Compare the rates you can earn with a money market account to high-yield and traditional bank accounts.

Dig deeper: High-yield savings account vs. CD: What to know when rates are high

Learn more about the elements of a money market account when deciding whether it’s a fit for your budget and financial objectives.

While both types of accounts offer a low-risk way to earn money on your savings, a money market account differs from a money market mutual fund account in a few key ways.

A money market account is a low-risk interest-bearing deposit account that’s offered by banks, credit unions and financial technology companies. Money within a money market account is insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration for up to $250,000 per person, per account.

A money market mutual fund is a type of mutual fund that’s offered by brokerage accounts and investment companies. This type of fund invests in low-risk, short-term debt securities like treasury bills and cash equivalents with protections under the Securities Investor Protection Corporation, and not the government.

Compound interest is often aptly described as earning interest on your interest. Compounding is a powerful way to boost your savings over time by earning interest on both your initial deposit and any interest you earn along the way. An account's APY is the total amount of interest you'll earn on your deposit over one year, including compound interest, expressed as a percentage, with many MMAs compounding daily or monthly.

Regulation D is a federal banking rule that regulates the number of withdrawals you can make on specific savings deposit accounts, money market accounts among them. Under this law, consumers are limited to six “convenient” transfers or withdrawals a month, including:

  • Automatic transfers or withdrawals

  • Withdrawals by check

  • Debit card transactions

  • Wire transfers

Regulation D doesn’t limit ATM or in-person withdrawals at a bank or credit union. In April 2020, the Federal Reserve relaxed Regulation D to allow unlimited transfers and withdrawals with no clear date for reinstatement.

Called the APY, this is the total amount of interest you’ll earn on your deposit over one year, including compound interest, expressed as a percentage.

APYs can be fixed or variable, depending on the type of deposit account. Fixed rates don’t fluctuate with market conditions — for example, a CD’s fixed rate is guaranteed over the life of your term. Variable APYs can increase or decrease with the market, which means you’ll want to monitor your rate periodically to ensure you’re getting the best available.

Yes. Money market accounts are insured by the FDIC or the NCUA, offering a layer of protection if your financial institution were to go out of business. It means that your money is protected by the Federal Deposit Insurance Corporation — or the National Credit Union Association, if your account is with a credit union.

The Federal Reserve — also called the Fed — is the central bank of the United States and the anchor of the financial system. Its board of governors is appointed by the president and confirmed by the Senate with the goals of maximizing employment, stabilizing prices and moderating long-term interest rates.

The Fed meets eight times a year to set the federal funds target rate cited in its dual mandate to "promote effectively the goals of maximum employment [and] stable prices." Called the Fed rate, this rate is the benchmark that influences what U.S. banks charge to borrow money and lend money to one another — and the interest rates you’re offered on money market accounts, loans, mortgages and other financial products.

Dig deeper: Can you lose money in a savings account? It's unlikely — but here's what to watch for

Kelly Suzan Waggoner is personal finance editor at AOL. Before joining AOL, Kelly was managing editor at Bankrate and editor-in-chief at Finder, where she led a team focused on helping people to make unfamiliar financial decisions around banking, lending, credit cards, investments and more. In addition to Bankrate and Finder, Kelly’s expertise has been featured in Nasdaq, Lifehacker and other publications. Today, she's dedicated to empowering those planning for, newly entering or fully enjoying retirement to get the most out of their finances — whether that’s saving money, managing debt, maximizing rewards or growing their wealth.

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