Finance
2 min read

Money Market Account

A bank account that combines features of savings and checking — usually higher interest, limited check writing, and a higher minimum balance. Insured by the FDIC up to standard limits.

How money market accounts work

A typical MMA combines features:

  • FDIC insured up to $250K (when at a bank) — same as savings accounts and checking accounts.
  • Higher interest than typical checking, often comparable to high-yield savings.
  • Limited check-writing — usually 6 transactions per month historically; loosened in recent years.
  • Debit card for some accounts.
  • Higher minimum balance required than basic checking; often $1,000-$10,000 or more.

In essence: a hybrid between checking and savings, with somewhat better yield in exchange for some transaction restrictions and higher minimums.

MMA vs. money market mutual fund

A confusing distinction:

  • Money market account — a bank deposit account. FDIC insured. Yield comparable to savings.
  • Money market mutual fund — an investment that holds short-term debt securities. NOT FDIC insured. May yield slightly higher.

Both are called "money market" but they're different products with different risk profiles. MMAs are deposits; money market funds are investments.

Why use an MMA

Reasonable use cases:

  • Higher yield than basic checking without abandoning bank-account convenience.
  • FDIC insurance for cash that needs to be available but should also earn interest.
  • Limited-transaction needs — for cash you'll only access occasionally.
  • One-stop banking — when you want all your accounts at one institution.

When alternatives are better

Other products often offer better yield or features:

  • High-yield savings account — usually similar yield without the higher minimum.
  • Money market mutual fund — may yield slightly higher; less liquid.
  • Treasury bills — direct ownership; very safe; often yield slightly more.
  • CD ladder — for cash you definitely won't need short-term.

Compare across products before settling on an MMA.

Yields

MMA yields typically:

  • Track federal funds rate with some lag.
  • Run 0.25-1.0% below Treasury bill yields.
  • Vary widely between institutions — online-only banks usually offer better yields than traditional banks.

In high-rate periods (2023-2024), MMAs and high-yield savings accounts at major online banks have offered 4-5% yields.

How yields adjust

When the Fed changes rates:

  • MMA yields adjust — usually within weeks.
  • Adjustments aren't always 1:1. Banks may absorb some changes through margin.
  • Different banks adjust at different speeds. Worth checking periodically.

In a falling-rate environment, MMA yields drop. Locking in CDs at higher yields can make sense when rates seem likely to fall.

What individuals should know

A few practical considerations:

  • Compare yields across institutions. The difference between a bad and good MMA can be hundreds of dollars per year.
  • Watch fees. Some MMAs have monthly fees waivable with minimum balance; others don't.
  • Consider the alternatives. High-yield savings often offers similar yield with lower minimum balance.
  • Don't keep too much. MMAs are for moderate-term cash; long-term money should typically be invested.

For most people, the choice between MMA and high-yield savings is mostly about minimum balance preferences and bank relationships. Both work fine for parking cash you'll need within a few months to a couple years.