How Do Money Market Accounts Work?
A money market account is a federally insured savings account that allows you to add or remove funds up to six times a month through a debit card or by writing a check. You can open a money market account at a bank or credit union.
Depending on the balance of your account, the average interest rate of a money market account is 0.57%, which is higher than the average interest rate offered by a normal savings account, according to 2023 data from the Federal Deposit Insurance Corporation (FDIC).
Once you open a money market account, it is automatically insured up to $250,000 per owner through the FDIC, which means your investment is protected in the unlikely event that a bank closes or fails. Accordingly, if you open a joint account with someone else, the account will be insured up to $500,000.
The average minimum deposit for opening a money market account ranges from $100 to $2,500. Keep in mind that the bigger your deposit, the higher your interest rate will be.
Most money market accounts require a minimum balance of $4,000. Be sure to keep your account balance above your bank or credit union’s minimum amount to avoid unexpected fees.
While a money market account is a trustworthy personal finance option, it’s important to understand the pros and cons to ensure you reach your savings goals.
Money Market Account Pros and Cons
Like any type of savings account, there are benefits and drawbacks to opening a money market account. Some of these pros and cons will depend on how well you’re able to control your spending.
For example, having access to a money market account can be beneficial or it can reflect poorly on your finances. While it can give you peace of mind to know you have full access to your funds in case of an emergency, it can also tempt you to withdraw money unnecessarily.
Pros and Cons of a Money Market Account
Pros
- FDIC insured
- Higher-than-average interest rates
- Can access account up to six times a month
Cons
- Can require high minimum deposit
- Possible monthly fees
- Fees for not meeting minimum balance
Since it’s easy to access your funds in a money market account, most people consider it useful as a rainy-day fund. If you want a savings account that will help you reach your retirement goals, other options may be better.
Money Market Accounts vs. Savings Accounts and CDs
Many banking options can help you build up your savings, whether you choose to open a money market account, a traditional savings account or a certificate of deposit (CD).
A money market account and a traditional savings account are very similar, but a savings account will typically have a lower interest rate and no access to checks. A CD is very different from the other two types of accounts.
When your money is in a CD, it cannot be moved throughout the designated term. The interest rate fluctuates, getting higher the longer the term.
Comparison of Savings Options
| Money Market Account | Savings Account | Certificate of Deposit (CD) |
|---|---|---|
Since the interest rate for CDs is exponentially higher than for other types of savings accounts, it can be easier to reach your retirement savings goals with a CD. This isn’t to say a money market account or traditional savings account cannot be used for retirement purposes, but it just may take a bit longer to reach your goals.
Read More: Money Market Accounts vs. Savings Accounts
Should You Open a Money Market Account?
If you want an accessible savings account with a high interest rate, a money market account may benefit you financially. With some money market accounts, you can earn up to 200 times more interest compared to a traditional savings account.
If you already have the minimum amount in another savings or checking account, you will have little or nothing to lose by opening a money market account, since the account will be federally secured. A money market account is a good option to bulk up your savings for a rainy-day fund.
If you will need to make frequent withdrawals or you can’t afford the minimum balance, a money market account may not be the best option for you.
Money Market Account FAQs
The average minimum balance for a money market account is $4,000.
Money market accounts are federally insured, regardless of whether you open the account at a bank or a credit union. At a bank, your money market account is insured by the FDIC. At a credit union, your account is insured by the National Credit Union Administration.
A money market account is a savings account that accumulates interest and occasionally lets you tap into the funds, but it is not a checking account.
Money market accounts are considered safe, as they are backed by the FDIC for up to $250,000 with a single account.
You have little to no risk of losing money in a money market account. Your money in a money market account is federally insured for up to $250,000 for a single account and $500,000 for a joint account.
The biggest difference is the interest rate offered. Interest rates on high-yield savings accounts tend to be much higher than on money market accounts. Another key difference involves how you access the funds in your account. A money market account allows you to move funds with a check, while a high-yield savings account does not.
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