What Is a Money Market Account?

First Republic Bank
September 12, 2022

  • A money market account is a form of interest-bearing savings account.
  • Money market accounts pay a tiered variable interest rate based on the balance of the account.
  • Your money market account may come with a debit card or checks, similar to a checking account. 

A money market account is a type of savings account that pays interest based on the current interest rates within money markets — the marketplace for short-term funds and savings products. Money market accounts may offer you a debit card and the ability to write checks, giving them some of the same capabilities as checking accounts.

What is a money market account, and how can you tell if it’s right for you? That depends on how you plan to use the account. There are limits to monthly money market transactions, for instance. Other factors may determine if it’s the right fit for your needs.

Money market account definition

Money market accounts are savings accounts that pay competitive interest rates based on borrowing rates from the money market. In general, the average money market account provides several features from both savings and checking accounts, including: 

  • Debit card access
  • Check-writing privileges
  • ATM withdrawals (but not ATM deposits)

First Republic offers money market accounts and money market checking services.

How does a money market account work?

A money market account shares many of the same key features as a checking account, which may differ from your average savings account. These features include debit cards and checks, which make it easier for you to make transactions from your money market account. Credit unions, online banks or brick-and-mortar financial institutions may all offer their own money market accounts.

How do money market accounts accrue interest?

In general, money market accounts accrue interest that’s compounded daily and paid out monthly. Since interest compounds daily, your overall interest payments are based on your compounded account balance. Interest tied to your account, in addition to the money market account's principal, grows per day, based on current interest rates.

Benefits and limitations of a money market account

As with any financial product, there are benefits and limitations to having a money market account.

Benefits of a money market account

Several general benefits come from opening and funding a money market account. 

  • Competitive interest rates, compared with other types of bank accounts: The annual percentage yield (APY) on money market accounts is determined by the deposit institution. The earnings on money markets may outpace other interest-bearing deposit accounts.
  • Insurance protection: The Federal Deposit Insurance Corporation (FDIC) insurance applies to money market accounts up to $250,000, as with most conventional checking and savings accounts.
  • Easy access to funds: Money market accounts give you more access to funds than other high-yield savings account types, such as a certificate of deposit (CD). 

Limitations of a money market account

Money market accounts come with potential drawbacks. These depend on how you plan to fund and use the account. Here are some of the possible drawbacks to using a money market account: 

  • Minimum balance requirements: Many (though not all) money market accounts require a minimum account balance, which may be higher than the amount you can afford to keep in the account on a daily or monthly basis.
  • Potential maintenance fees: Some money market accounts come with monthly maintenance fees, although banks that charge these fees may also waive them for clients who qualify.

How do money market accounts compare with other types of accounts?

While money market accounts can offer similar advantages to other bank accounts and financial products, there are key differences between this type of account and three related options: regular savings accounts, certificates of deposit and high-yield savings accounts.

Money market account and savings account

Distinctions between money market accounts vs. savings accounts are small but important. Money market accounts are similar to savings accounts, except they offer more ways to move funds and make transactions. Savings accounts may also offer a lower interest rate than a money market account, which is tied to market interest rates.

Money market account and certificates of deposit (CDs)

The difference between a money market account and a CD is more distinct. Money market accounts are similar to CDs insofar as they both pay competitive interest rates. However, the cash within a CD is harder to access than money market account funds. Most CDs have penalties for early withdrawal, whereas money market accounts typically give you access to funds via debit card, check or online transfers.

Money market account and high-yield savings accounts

There are many similarities between money market accounts and high-yield savings accounts. A high-yield savings account may also provide competitive interest rates, but it will likely differ from current money market account rates. High-yield savings accounts may also not come with checks or debit cards, which is worth considering, depending on how you plan to use the account.

Is a money market account right for me?

Money market accounts are generally a type of savings account that can help you meet or exceed your savings goals. There are several reasons why you might want to consider a money market account versus a checking or regular savings account. 

  • You’re looking to grow your rainy day or emergency fund: Money market accounts offer competitive interest rates that can help you grow your savings.
  • You want to take advantage of higher interest rates: Money market accounts come with competitive interest rates, which isn’t necessarily the case for savings or checking accounts.

Although money market accounts come with a distinct set of advantages, they might not be the right option for your finances. It’s important to consult a financial professional to explore your options and discover which one can help you grow your savings.

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