What is a money market account?

Account options for saving cash generally fall into three categories: checking, savings and investing. A money market savings account, also known as a money market deposit account or money market account (MMA), fits somewhere between checking and savings. It's a savings account that earns interest, but it has checking benefits that allow you to use the funds more freely. Here is some additional information to explain how money market accounts work.

Advantages of money market accounts

A money market account will usually offer higher interest rates, access to a debit card, the ability to write checks and is usually insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) to at least $250,000 per depositor.

Disadvantages of money market accounts

With these accounts you will need to maintain a minimum monthly balance, restricted to a certain number of transactions and may encounter additional fees.

Money market account vs savings account

While money market savings accounts typically have higher interest rates, they may require larger deposits when opening the account and have a higher minimum balance ($2,500). You may face penalties if the balance falls below the minimum amount. The funds may also be more liquid; with checks and a debit card included, you can make transactions straight from your money market savings account, where savings accounts typically require you to transfer funds to yourself first. Both accounts, by law, typically allow six transactions per month. These transactions could be writing a check, using a debit card or moving money to another account.

Money market vs checking account

Both account types have common features like unlimited deposits, use of debit cards and check writing privileges. Nonetheless, MMAs may have restrictions related to number of monthly transactions allowed and minimum balance required to avoid fees. Usually, MMAs will offer a high interest rate compared to a checking account. Consult with your banking institution about restrictions, interest rates and specific rules for the account you choose.

Benefits of money market accounts

If you want to earn an interest rate on your money but want easy access to those funds, a money market savings account may be for you. For instance, it may be a good fit for an emergency fund or anything you wish to save for. You can keep those budget items out of sight so you don't spend them, grow them with interest, and have them available in a pinch. Consider using your money market account to establish a direct deposit or to pay a few recurring expenses — just keep in mind the minimum balances and maximum number of transactions.

And since MMA earnings aren't dependent on market fluctuations — they can be a safe option. You also don't face penalties for accessing the funds, as long as you stay within the monthly transaction and balance limit established by your bank or credit union.

Get started

If you think a money market account may fit your needs, you can begin by shopping for the highest interest rate first. Because it is not an investment account, you run no greater risk for a higher yield. However, you may want to layer in a few other considerations:

• Are there monthly fees? How much?
• Is a monthly deposit required?
• What's the initial deposit minimum? Do you have that ready?
• What's the minimum balance? Is it reasonable for you to maintain?
• Does interest compound daily or monthly? (Daily interest will earn you more.)

Now that you have read information about money market accounts, you may be interested in learning more about money market funds, the basics of checking accounts or different types of savings.