Everything to know about money market accounts

With interest rates rising, you may be considering parking your cash in a savings account. One option to earn more interest is a money market account, also known as a money market savings or money market deposit account. 

If you think this could be a good option for your money you can easily get started today. You could earn significantly more interest than the current national average.

If you're not sure about this option, however, here's what you need to know to make a more informed decision. 

What is a money market savings account?

A money market account is a type of savings account offered by a bank or credit union that often has some features of a checking account, like the ability to pay bills and write checks. 

Money market accounts frequently offer higher interest rates than traditional checking, savings and high-yield savings accounts.

Because many money market accounts require a minimum balance, they may be a good option for people who want to earn more interest than a regular savings account but still need fast, easy access to funds. Like all types of savings accounts, a money market account balance should earn interest and be federally insured.

How does a money market savings account work?

A money market account acts as a hybrid savings and checking account. There are some rules you won't find in other types of savings accounts.

In general, financial institutions tend to offer higher interest rates in exchange for a minimum deposit in a money market savings account. Often (but not always) the higher the deposit, the higher the interest rate and lower the fees. Thoroughly research a range of banks and credit unions to find an account that fits your needs and has rules you can handle.

There can be some restrictions. As of 2020, federal rules no longer limit money market account withdrawals to six times a month. But many banks and credit unions still cap the number of times you can withdraw from a money market account. Be sure to research all the details before you open an account so you aren't unexpectedly charged a fee or are penalized.

How can a money market savings account help you save?

A money market account can earn you higher interest than a typical savings account. It also offers some checking account features as well as easy access to funds. Money market accounts can offer higher interest without the time restrictions of a certificate of deposit (CD) or savings bonds.

For instance, if you are saving for a big expense such as a downpayment on a home but anticipate you may need cash fast, a money market account may be the kind of savings account for you.

If this is something that interests you, don't hesitate. Get started today and start earning more interest on your money.

Do money market accounts make you money? 

With interest rates rising, you're apt to accumulate more interest than you would have got recently with traditional savings accounts. You'll also have your money in a separate account, which experts recommend for building emergency and other savings.

Unlike investments in riskier instruments like stocks, money market accounts present little or no risk. You won't lose money even if interest rates sink close to zero again.

Money market accounts are a type of deposit account and are federally insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. 

How does a money market account differ from a savings account?

A money market account is technically a kind of savings account that offers some of the features of a checking account. It often (but not always) pays a higher interest rate because of the larger required deposit than a typical savings account.

Rates on money market savings accounts are variable, meaning factors like Federal Reserve policy and the state of the economy prompt banks to raise and lower rates accordingly. Each financial institution controls its own rates, so it can also depend on company conditions.

Some institutions charge fees for dropping below a certain balance or for making too many withdrawals per month, so look carefully at the terms of a money market account.

How do you open a money market account?

To shop around for a low minimum balance, no fee and higher interest rate combination, you may want to:

• Check with your bank, credit union, financial adviser or broker first. It's a good idea to look closely and compare the institutions you already use.
• Consider online banks. Online institutions tend to have fewer costs than brick-and-mortar banks, which makes it easier for them to offer lower fees and higher interest rates.  
• Look at factors other than the interest rate. This includes fees, minimum balance levels and the number of allowed withdrawals per month.

What do you need to open a money market account?

Some cash. If you're just starting and don't have a large amount, there are some banks and credit unions with money market accounts requiring less than $1,000 to open an account. 

Pros and cons of money market accounts

There are benefits and disadvantages to opening a money market account. 

Here are some pros:

• Interest rates/annual percentage yield (APY) are usually higher than regular savings 
• Risk is low to nonexistent because deposits are federally insured
• Access to your cash may be faster and easier than other kinds of accounts with high interest-bearing rates
• Many have low or no fees depending on the individual bank or credit union's terms

And there are some cons to opening a money market account: 

• The minimum deposits could be high
• Financial institutions often limit the number and kind of monthly withdrawals
• Lower risk means you might not earn as much money compared to higher-risk investments like stock or real estate

If you think you're ready to start earning more on your savings you can explore your options now.