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How Do Money Market Accounts Work?

Money market accounts are popular options for either short or long-term savings. They usually have higher interest rates than savings accounts and you can also write checks from them. Whether a money market account is a good savings option for you depends on your goals and whether you need to have monthly access to your money.

What Is a Money Market Account?

A money market account is a hybrid between a savings account and a checking account. It is an interest-bearing account, which means you earn interest on the money you deposit.

Money market accounts are offered by both banks and credit unions and they are great for many different savings goals. Many people also use them for emergency funds. Their money is stored safely in an interest-bearing account, but they also have access to it when they need it.

How Do Money Market Accounts Work?

A money market account is very easy to open and can be done in a single visit. A minimum deposit is required to open and maintain an account. The amount will vary depending on the financial institution, but $2,500 is typical.

An important feature of money market accounts that many people like is that you can write checks from them. An account may also come with a debit card to make purchases. Withdrawals are limited, however, to no more than three per month.

Money market accounts also have variable interest rates. Because the rate may vary often, it isn’t possible to determine how much you will earn in a period.

Finally, the money you deposit in a money market account is safe. Deposits are backed by the federal government for up to $250,000. If your account is with a bank, it will be insured by the Federal Deposit Insurance Corporation (FDIC). If it’s with a credit union, it will be insured by the National Credit Union Administration. (NCUA).

Money Market Accounts vs. Savings Accounts

Similar to money market accounts, savings accounts also pay interest on your deposit. The two accounts differ, however, in several important ways.

Interest Rates

Although money market accounts and savings accounts both have variable interest rates, the rates for money market accounts are usually higher. Rates will vary depending on the bank or credit union.


Making a withdrawal from a money market account is very easy. You can either write a check directly from the account or make a purchase with a debit card.

To withdraw money from a savings account, you may have to first transfer money from the account to your checking account. This can either be done in person or online. You may also be able to make a cash withdrawal from a savings account, but this will require a visit to a local branch.

Minimum Balance Requirements

Savings accounts usually have lower minimum balance requirements than money market accounts. This makes them easier to open and maintain.

Money Market Account Advantages

Money market accounts have several important advantages to consider. Depending on your needs, this account may be a better option than a savings account or share certificate.

Higher Interest Rates

Money market accounts usually have higher interest rates than savings accounts, which may allow you to earn more interest.

Access to Your Money

With a share certificate through a credit union, you won’t have access to your money until the term ends (the maturity date). Although it is possible to withdraw money early, you will be assessed a penalty for doing so. With a money market account, however, you will have access to your money. You can make up to six withdrawals per month.


Making withdrawals from a money market account is quick and easy. There’s no need to transfer money from one account to another first. You can conveniently write a check or use a debit card to make a purchase.

Deposits Are Insured

The money you deposit in a money market account is safe. Deposits are insured by either the FDIC or NCUA for up to $250,000.

Money Market Account Disadvantages

Although money market accounts have several great things going for them, it’s important to also consider the potential disadvantages before opening an account.

Limited Transactions

Withdrawals with money market accounts are limited to three per month. Therefore, you should not use them in place of checking accounts.

Potential Fees

Depending on your financial institution, you may be assessed a monthly account maintenance fee. If a monthly fee is charged, it will reduce how much your account earns.

Minimum Balance Requirement

Money market accounts usually have minimum balance requirements that are higher than savings accounts. This requirement could prevent some people from opening accounts.

Variable Rates

Unlike share certificates, which have fixed interest rates, the rates for money market accounts are variable. If the interest rate decreases sometime in the future, your account may earn less than if you had locked in a better rate with a share certificate.

When Should You Consider a Money Market Account?

Money market accounts are great options for many savings goals. They are ideal for emergency funds or saving for a wedding, vacation, or something else. They allow you to take advantage of a competitive interest rate, but you also have access to your money if you need it.

Although you can make up to three withdrawals per month with a money market account, it typically isn’t the best account for your everyday banking. Checking accounts are better for your regular banking activities.

Money Market Accounts vs. Share Certificates

Before you open a money market account, it’s important to also consider the benefits of share certificates, which usually have higher interest rates. Share certificates typically pay more interest because you agree to not withdraw your money until the maturity date.

Click on the following link to learn more about share certificates and to see how they compare to money market accounts.


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