Personal Finance

How Does a Money Market Account Work? A Complete Guide

A money market account is a type of savings account that offers benefits like limited check writing and debit card privileges. Money market accounts work differently than traditional savings accounts and provide some unique features. This comprehensive guide will explain what a money market account is, how it works, its key features, pros and cons, and help you determine if it’s the right place for your savings.

What is a Money Market Account?

A money market account (MMA) is a type of bank deposit account that pays interest like a savings account but also allows limited transactions like a checking account. Money market accounts are offered by banks and credit unions to individuals and businesses.

Unlike regular savings accounts, money market accounts give account holders more flexibility in accessing their cash while still earning interest. They are considered extremely low-risk investments, with funds insured by the FDIC or NCUA up to $250,000 per depositor.

More Information: Money Market Account vs Savings Account

Some key features of money market accounts include:

  • Higher interest rates than traditional savings accounts
  • Check writing privileges in many cases
  • Debit card access at ATMs
  • Mobile deposits and transfers in many cases
  • FDIC or NCUA insurance on deposits
  • Minimum balance requirements to open account and avoid fees
  • Limits on withdrawals and transfers – typically 6 per month

Money market accounts allow savers to grow their money while having some check and debit card access. However, they are still savings vehicles and not intended for everyday transactions like checking accounts.

How Do Money Market Accounts Work?

Money market accounts work very similarly to high-yield savings accounts, with a few additional features borrowed from checking accounts. Here is an overview of how they operate:

  • You open a money market account at a bank or credit union, either online, in person, or sometimes by phone.
  • An initial deposit is required to open the account, typically between $1,000 and $25,000. Some accounts have no minimum.
  • You can make additional deposits anytime, either electronically, through mobile check deposit, direct deposit, or by visiting a branch.
  • Your account earns a variable interest rate on the average daily balance. Rates are similar to high-yield savings accounts.
  • Interest is compounded daily in most cases and credited to your account monthly.
  • You may have limited check writing to access funds, often with a minimum check amount requirement.
  • A debit card can be used to withdraw funds from ATMs. Some accounts offer free ATM access.
  • Online and mobile transfers allow moving money between accounts at the same institution.
  • Withdrawals and transfers are limited, usually to 6 per month by federal regulation.
  • Fees can be avoided by maintaining a minimum balance, often $1,000 to $10,000.
  • Accounts are FDIC insured up to at least $250,000 in case of bank failure.

So in summary, money market accounts operate almost identically to high-yield savings accounts, with the main difference being the added check writing and debit card convenience for accessing your cash. The tradeoff is limits on transfers to discourage using it as a checking account replacement.

Pros and Cons of Money Market Accounts

Pros and cons-of money market accounts

Money market accounts offer some unique advantages, but also have some limitations to be aware of.


  • Earn higher interest rates than regular savings accounts
  • FDIC or NCUA insurance protects your deposits
  • Check writing capability at some banks
  • Debit card allows for easy ATM access to cash
  • Mobile and online transfers to move money quickly
  • No early withdrawal penalties like on CDs
  • Federally regulated to protect consumers


  • Limited to 6 transactions per month by regulation
  • Minimum balance can be higher than for savings accounts
  • Monthly fees if balance drops too low
  • Interest rates fluctuate and may not beat inflation
  • Higher initial deposit required to open account
  • No free checking features like bill pay

As you can see, money market accounts offer competitive interest rates plus some transaction convenience. However, restrictions on transfers and sometimes higher minimum balances require keeping close track of the account terms.

Key Features of Money Market Accounts

Some of the key features and terminology important for understanding money market accounts includes:

Initial Deposit – The minimum deposit needed to open a new money market account, usually between $1,000 and $25,000.

Average Daily Balance – The average funds on deposit for the month. Interest is calculated based on the average daily balance.

Variable Interest Rate – The annual percentage yield (APY) fluctuates based on market conditions. Rates may change at any time.

Compounding – Interest that accrues daily on the account balance and is credited monthly.

FDIC/NCUA Insurance – Default insurance and protections provided on deposit accounts. Covers up to $250,000 per depositor.

Minimum Balance – The lowest balance allowed to avoid monthly maintenance fees, typically ranging from $1,000 to $5,000.

Withdrawals/Transfers – Money market accounts are limited by regulation to 6 convenient withdrawals and transfers per month.

Check Writing – Some money market accounts provide checks to access your available funds up to a certain limit per check.

Debit Card – Many money market accounts provide an ATM card or debit card to withdraw cash from ATMs.

Overdraft Protection – Linking to a checking account to cover overdrafts by pulling funds from the money market account.

Monthly Statements – Detail all account transactions, interest earned, fees assessed, and ending balance.

Mobile Banking App – Check balances, make deposits, transfer funds between your accounts at that bank.

Being aware of these key features allows you to choose the right money market account and avoid potential fees.

Is a Money Market Account Right for You?

is money market account right for you

With an understanding of how money market accounts work, consider if this type of account makes sense for your financial situation and savings goals.

Best for:

  • Parking cash savings for short-term needs
  • Earning higher interest on emergency funds
  • Saving up for planned expenses like a vacation
  • Accessing savings funds remotely
  • Keeping college savings separate while earning interest

Not ideal for:

  • Frequent transactions and daily spending
  • Long-term savings goals like retirement
  • Investing for higher returns
  • Avoiding monthly maintenance fees
  • Kids’ irregular spending and saving

Money market accounts offer the convenience of accessing your savings for short-term needs combined with competitive interest rates. If your goals require optimized liquidity and returns, a money market account may be a great fit.

The Bottom Line

Money market accounts offer savers the ability to grow their cash through interest while maintaining some check and debit card access. Understanding how they work allows you to take advantage of their unique flexibility and earn higher returns on your short-term savings. Just be aware of any transfer limitations, balance requirements, and other fine print for whichever account you select.


What is the interest rate on money market accounts?

Money market account interest rates are variable but typically range from 0.25% – 2.00% APY as of 2023. Rates are similar to high-yield savings accounts.

Are money market accounts liquid?

Money market accounts allow check writing and debit card access in most cases, however withdrawals and transfers are limited by federal regulation to 6 convenient transactions per month.

Are money market accounts FDIC insured?

Yes, money market accounts at FDIC member banks are insured up to at least $250,000 per depositor by the FDIC to protect your funds. Accounts at credit unions are insured similarly by the NCUA.

Can a money market account overdraft?

In some cases, money market accounts can be linked to a checking account at the same institution to provide overdraft protection when the checking balance is insufficient. The money market funds can automatically cover checking transactions that would otherwise overdraw.

Do money market accounts have monthly fees?

Some money market accounts charge monthly maintenance fees if your balance drops below a minimum, such as $2,500. Be sure to understand any balance requirements and fees before opening an account.

Jim Collins
Jim Collins is a leading expert in savings accounts, offering profound insights into optimizing financial growth. With a keen understanding of insurance and policies, Jim provides invaluable guidance for securing a stable financial future.

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