The Basics of Money Market Accounts


A money market account is a type of deposit account that offers a higher interest rate than a traditional savings account. Because of this, it’s typically used for short-term savings goals such as an emergency fund or a down payment on a home. Money market accounts are FDIC-insured up to $250,000 per depositor, and invest funds in short-term, low-risk securities such as CDs, Treasury bills, and commercial paper.

Saving and investing money is an important aspect of financial planning. But with so many options available, it can be difficult to decide where to put your money. One option that you may not have considered is a money market account.

So what is a money market account, and how do you know if it’s the right choice for you? In this article, we’ll take a closer look at money market accounts, including what they are, how they work, their advantages, and their drawbacks.

What is a money market account?

A money market account is a type of savings account that typically offers a higher interest rate than a traditional savings account. Most financial institutions offer these accounts as they’re considered to be a low-risk investment option. This is because they’re FDIC-insured, which means that deposits up to $250,000 are insured by the Federal Deposit Insurance Corporation (FDIC).

Money market accounts have certain characteristics that make them different from other types of savings accounts. For example, they often have higher minimum balance requirements, which means that you need to maintain a certain balance in the account to avoid fees. They may also have transaction limits, which means that you can only withdraw or transfer a certain amount of money from the account each month.

While a money market account (MMA) isn’t as liquid as a checking account, it typically offers more flexibility than a certificate of deposit (CD). Whereas a CD requires you to keep your money in the account for a fixed period to earn a high interest rate, MMAs allow you to access your funds as long as you have money in the account.

How do MMAs work?

Money market accounts work by pooling the deposits of account holders and investing the funds in low-risk, short-term securities such as government bonds, certificates of deposit, and commercial paper. The account then passes on the returns from these investments to the account holders in the form of interest payments.

MMAs typically offer higher interest rates than traditional savings accounts because the funds are invested in higher-yielding securities. However, interest rates on money market accounts can still fluctuate depending on market conditions. Many of these accounts offer tiered interest rates, which means that the interest rate you earn on your account will depend on your account balance. Generally, the larger your balance, the higher the interest rate you will earn.

In terms of accessing your funds, money market accounts typically allow for a limited number of withdrawals or transfers per month (typically six). If you exceed this limit, the financial institution may charge you a fee or convert your MMA into a different type of account.

What is the difference between a money market account and a savings account?

While money market accounts and savings accounts are both deposit accounts offered by banks and credit unions, there are some key differences between the two.

Money market accounts typically offer higher interest rates than savings accounts, but they may also have higher minimum balance requirements and limited transactions. Savings accounts are designed for longer-term savings goals, while money market accounts are better suited for short-term savings goals. Additionally, savings accounts may offer more flexibility and fewer restrictions on transactions.

If a savings account sounds more up your alley, consider opening one of the accounts below.

Pros and cons of money market accounts

While money market accounts offer several advantages, there are also some drawbacks to consider before opening an account.


Here is a list of the benefits and drawbacks to consider.

  • Higher interest rates
  • FDIC insurance
  • Easy access to funds
  • Low risk
  • Lower returns than riskier investments
  • Limited transactions
  • Higher minimum balance requirements
  • Fees

Pros explained

  • Higher interest rates. One of the main advantages of money market accounts is that they typically offer higher interest rates than traditional savings accounts. This can help your money grow more quickly over time.
  • FDIC insurance. Another advantage of MMAs is that they’re FDIC-insured up to $250,000 per depositor. This means that even if the financial institution holding your money market account were to fail, you would be protected and able to recover your funds.
  • Easy access to funds. Money market accounts offer relatively easy access to your funds. While there may be some transaction limits or minimum balance requirements, you can generally withdraw or transfer funds from your account as needed.
  • Low risk. Most consider MMAs a low-risk investment option because the accounts invest in low-risk, short-term securities. This makes them a good choice for people who want to save and invest their money without taking on too much risk.

Cons explained

  • Lower returns than riskier investments. While MMAs offer higher interest rates than traditional savings accounts, they generally offer lower returns than riskier investments such as stocks or mutual funds. If you’re willing to take on more risk, you may be able to earn higher returns elsewhere.
  • Limited transactions. Money market accounts typically have limits on the number of transactions you can make each month. If you need to access your funds frequently or make a large number of transactions, this type of account may not be the best option for you.
  • Higher minimum balance requirements. Money market accounts often have higher minimum balance requirements than traditional savings accounts. If you don’t maintain the minimum balance, you may incur fees or lose access to some of the account’s benefits.
  • Fees. Some money market accounts may charge fees for maintaining the account, making transactions, or failing to meet minimum balance requirements. Before opening an account, be sure to review the account’s fees and charges.

Overall, money market accounts are a good option for people who want a low-risk investment with a relatively high interest rate. However, they may not be the best choice for everyone, particularly those who need frequent access to their funds or who want to take on more risk.

Before investing in an MMA, make sure you consider the advantages and drawbacks. To get a better idea of what these accounts may offer, take a look at some of the money market accounts below.

What is an example of a money market account?

Some examples of money market accounts include those from Ally Bank, UFB Direct, and Quontic Bank. It’s important to research and compare different money market accounts to find the best one that fits your financial goals and needs.

Key Takeaways

  • A money market account is a type of deposit account that typically offers a higher interest rate than a traditional savings account.
  • MMAs are FDIC-insured up to $250,000 per depositor and invest funds in short-term, low-risk securities such as CDs, Treasury bills, and commercial paper.
  • Money market accounts are good for short-term savings goals, emergency funds, and down payments on a home.
  • If you’re looking for an account designed for longer-term savings goals, you may want to consider a savings account instead.
View Article Sources
  1. Money Market Fund — U.S. Securities and Exchange Commission
  2. Money Market Account —
  3. What is a Money Market account and is it right for you? — Georgia’s Own Credit Union