What is a money market account?

The illustrated graph compares money market accounts against five alternative accounts.

To save money, there are different types of accounts to choose from, each with advantages and disadvantages.

Here’s a closer look at how to do that Money market accounts Compared to other popular types of savings accounts, eg Savings accounts and traditional accountscertificates of deposit and money market funds.

Money market account vs savings account

Money market accounts Traditional savings accounts are common types of deposit accounts offered by banks and credit unions. One of the main differences between them is the interest rates.

MMAs generally offer slightly higher interest rates than traditional savings accounts (although this varies depending on the current state of the economy since MMA interest rates rise and fall with inflation). However, they also tend to require a higher minimum balance. In contrast, traditional savings accounts often have lower minimum balance requirements, if any.

Some MMAs may also charge a monthly fee if your balance is below the required minimum. If you’re hoping to earn more interest without paying the MMA minimum balance, you might consider a high-yield savings account instead. HYSA is another great way to earn more The interest than traditional savings accounts with a minimum balance is much lower.

Money market account vs current accounts

While most Money market accounts It comes with check (and sometimes debit card) writing privileges just like normal current accountThey are not designed for everyday use. MMAs usually limit the number of transactions you can make per month, while checking accounts generally offer unlimited transactions.

While the federal mandate limiting MMA withdrawals to six per month was raised in 2020, many banks still enforce that limit. 1 This is where the main difference between MMA and current accounts lies. While checking accounts are designed for everyday spending, MMAs are intended to be savings accounts with limited access to your money.

Money market account for cds

a certificate of deposit (CD) A savings account that pays a fixed rate of interest over a set period, with a penalty for withdrawing funds before the term expires.

CDs are long-term savings vehicles with specific terms and penalties for early withdrawals. This means that there is less money on the CD liquid (ie less easy) than money in MMA.

CDs usually require a higher minimum deposit than MMA, but in exchange for this higher deposit, you may be able to earn a higher interest rate. CDs also offer a fixed rate of return for the term, while MMAs generally have variable rates that can change over time.

Ring tip: If you’re looking for a long-term savings option and don’t need immediate access to your money, a CD may be a smart choice. However, consider MMA if you want a more flexible savings option with a competitive interest rate.

Money market account vs money market mutual funds

Money market and money market accounts investment funds MMFs are two different financial products that are often confused. Unlike MMAs, money market funds are not offered at banks and credit unions. Instead, they are offered by mutual fund companies and investment brokerage firms.

While MMA is federally insured interest calculationMoney market funds are mutual funds that invest in short-term debt securities. Unlike MMA, they are not FDIC-insured and are not deposit accounts but investment vehicles that allow you to earn a return on your money.

MMFs are slightly higher-risk investments because they are not FDIC-insured and subject to market fluctuations. Although it is still considered a relatively safe investment, it does come with some risks as the returns are not guaranteed.

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