What a money market account actually is

A money market account is a savings account that pays you interest, but with rules attached. You can withdraw money whenever you want, but the bank limits how many withdrawals you can make each month—usually six. In exchange for accepting that limit, the account pays a higher interest rate than a regular savings account.

The account sits between a checking account (unlimited withdrawals, little or no interest) and a certificate of deposit or CD (locked money, higher interest). You get better returns than savings, but you keep the ability to reach your money if you need it.

Key Takeaways

  • Money market accounts pay higher interest than savings accounts but limit you to about six withdrawals per month.
  • The interest rate varies by bank and changes with the Federal Reserve's rate decisions, so your earnings go up and down.
  • Most money market accounts require a minimum balance—often $2,500 to $10,000—to open or to earn the advertised rate.
  • Exceeding your withdrawal limit triggers a fee, usually $10 to $25 per extra withdrawal, and some banks close the account if you do it repeatedly.
  • Your deposits are insured up to $250,000 by the FDIC if the bank fails, the same as any other bank account.

How the interest rate works and why it changes

The bank pays you a percentage of your balance each month or quarter. That percentage is called the annual percentage yield, or APY. A money market account at one bank might offer 4.50% APY while another offers 3.75%—the difference matters if you have $10,000 sitting there.

The rate you see today will not stay the same. Banks raise and lower their rates based on what the Federal Reserve does. When the Fed raises its benchmark rate, banks usually raise what they pay on savings. When the Fed cuts rates, banks cut what they pay you. This happens several times a year, so your earnings shrink or grow without you doing anything.

Some banks advertise a "promotional rate" for the first few months—a higher rate to get you to open the account. After that period ends, the rate drops to the regular rate. Read the fine print to see when the promotional period ends and what the regular rate will be.

The withdrawal limit and what happens if you break it

Federal rules used to cap money market withdrawals at six per month. Those rules changed in 2020, but most banks kept the limit anyway because it helps them manage cash flow. A few banks have removed the limit entirely, but they are the exception.

The six-withdrawal limit usually includes transfers to other accounts and checks you write from the money market account. It does not include ATM withdrawals or in-person withdrawals at a branch—those typically do not count. Ask your bank which transactions count toward the limit before you open the account.

If you exceed the limit, the bank charges a fee—usually $10 to $25 per withdrawal over the cap. Some banks waive the fee once per statement period. Others charge every time. A few banks will close the account if you repeatedly exceed the limit, so treating it as a regular checking account will eventually get you locked out.

Minimum balance requirements and how they affect you

Most money market accounts require you to keep a minimum balance to earn the advertised rate. That minimum is often $2,500, $5,000, or $10,000, depending on the bank. If your balance drops below the minimum, the bank pays you a lower rate—sometimes much lower—or charges a monthly fee.

Some banks waive the minimum if you set up automatic deposits or link the account to a checking account with the same bank. Others have no minimum at all but pay a lower rate to everyone. Compare what you actually earn at each bank, not just the advertised rate, because the minimum affects whether you get that rate.

If you fall below the minimum by accident—say, you withdraw $500 and did not realize you were at $2,400—the bank usually gives you a grace period of a few days to bring the balance back up. After that, the lower rate or fee kicks in. Check your account regularly if you are close to the minimum.

Fees beyond the withdrawal limit

The withdrawal fee is the most common charge, but money market accounts can have others. A monthly maintenance fee is charged just for having the account open, usually $5 to $15. Many banks waive it if you keep the minimum balance or set up direct deposit.

An inactivity fee is charged if you do not use the account for a long time—typically six months to a year with no deposits or withdrawals. This is rare at large banks but common at smaller ones. A low balance fee is charged if your balance drops below the minimum, separate from the lower interest rate you will earn.

Some banks charge a fee to close the account if you close it within a certain time period—often 90 days to a year. This is less common now, but it exists. Read the fee schedule before you open the account, and ask specifically about fees that apply if you do not meet the minimum balance.

FDIC insurance and what it protects

Your money in a money market account is insured by the Federal Deposit Insurance Corporation, or FDIC, up to $250,000 per account holder per bank. If the bank fails, the FDIC pays you back. This protection is automatic—you do not have to do anything.

The $250,000 limit applies to all your savings accounts at the same bank combined. If you have a money market account with $150,000 and a regular savings account with $150,000 at the same bank, only $250,000 total is insured. The other $50,000 is not protected. If you want to insure more than $250,000, you need to split it across different banks.

Money market accounts at credit unions are insured the same way, but by the National Credit Union Administration, or NCUA, instead of the FDIC. The limit is still $250,000 per account holder per institution.

Money market accounts versus savings accounts and CDs

A regular savings account has no withdrawal limit and usually no minimum balance, but it pays less interest—often 0.01% to 1.00% APY depending on the bank. You can move money in and out freely, but you earn almost nothing on it. A money market account pays more (currently 4% to 5% at many banks) but restricts how often you can withdraw.

A CD locks your money for a set time—three months, one year, five years—and pays a fixed rate for that entire period. You cannot touch the money without paying a penalty, usually three to six months of interest. But the rate is may provide and often higher than a money market account. A CD makes sense if you know you will not need the money for a specific time period.

A money market account is useful if you want better returns than savings but need to reach your money occasionally. It is not the right choice if you need to withdraw more than six times a month, or if you want a may provide rate that will not change.

How to choose between banks and what to compare

Start by comparing the APY at banks you already use or that offer online accounts. Write down the rate, the minimum balance, and the monthly fee. Then calculate what you would actually earn in a year at each bank, accounting for the minimum balance requirement.

For example: Bank A offers 4.50% APY with a $5,000 minimum and no fee. Bank B offers 4.75% APY with a $10,000 minimum and a $5 monthly fee. If you have $5,000, Bank A earns you about $225 per year. Bank B would not pay the advertised rate because you do not meet the minimum, so you would earn less and pay $60 in fees. Bank A is better for you.

Check whether the bank waives fees for direct deposit or linking to a checking account. Ask what counts as a withdrawal toward the six-per-month limit. Look at the bank's website or call and ask directly—the rules vary, and the fine print is where the real answer lives.

Frequently Asked Questions

Can I use a money market account like a checking account?

Some money market accounts come with a debit card or checkbook, but using them counts toward your six-withdrawal limit. If you write three checks and make three transfers in a month, you have hit the limit and any further withdrawals trigger a fee. It is not designed for frequent transactions.

What happens to my interest if I fall below the minimum balance?

The bank stops paying you the advertised rate and switches you to a lower rate, often 0.01% or less. Some banks also charge a monthly fee. You stay in this lower-rate status until your balance goes back above the minimum, which can take weeks or months depending on your deposits.

Is a money market account safe if the bank goes out of business?

Yes. The FDIC insures deposits up to $250,000 per account holder per bank. If your bank fails, the FDIC pays you back in full (up to that limit) within a few business days. This protection is automatic and costs you nothing.

Can the bank change the interest rate whenever it wants?

Yes. Banks can raise or lower the rate at any time, and they do not have to give you advance notice. You will see the new rate reflected in your next statement. This is why money market rates change frequently—they follow what the Federal Reserve does with its benchmark rate.

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

A money market account is a bank account insured by the FDIC. A money market fund is an investment product sold by brokerages and mutual fund companies, not insured by the FDIC, and carries different risks. They are different products with similar names. Make sure you know which one you are opening.