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How Do Money Market Accounts Work?

access_time Posted on: August 21st, 2023

Traditional savings accounts are the bedrock of personal finance, providing a safe haven for our hard-earned money. However, in the quest for higher interest earnings and greater flexibility, many people opt to open a money market account (MMA) instead.

MMAs combine the best of both worlds and can be an attractive alternative for those seeking stability and potentially higher-yielding interest rates. Read on to learn more about how money market accounts work and if opening one might be right for you.

What Is a Money Market Account?

A money market account is a type of deposit account that often offers higher interest rates than a traditional savings account. However, MMAs also typically have higher minimum balance requirements and stricter transaction limits. 

Money market accounts are a good option for people who want to earn higher interest on their savings but still have access to their money when needed. They are also ideal for people who wish to have the conveniences of a checking account, such as writing checks and using a debit card.

How Money Market Accounts Work

Money market accounts function similarly to regular deposit accounts, allowing contributions, withdrawals, and interest earnings. They come with several important considerations, including:

Interest Rates 

MMAs typically offer higher interest rates than standard savings accounts, thanks to how credit unions utilize your deposits. They invest your money in stable, short-term securities such as Treasury bills and commercial paper.

The interest they earn from these investments is then partially passed on to you. Remember that these rates are variable and can fluctuate based on market conditions. This is important to note because it means that the interest rate on your MMA could go up or down over time. 

Money Market Account Pros and Cons

Like all financial products, money market accounts have their advantages and disadvantages, including:


Higher Interest Rates—Money market accounts usually offer higher interest rates than regular savings accounts, helping you grow your money faster.

Accessibility—The ability to write checks and use a debit card provides greater flexibility in accessing your funds.

Safety—Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) at banks and by the National Credit Union Administration (NCUA) at credit unions, making them a safe place to store money.


Minimum Balance Requirements—Money market accounts often have higher minimum balance requirements. If you can’t maintain this balance, it might not be your ideal option.

Variable Rates—Interest rates can fluctuate, meaning your earnings can vary over time.

How Money Market Accounts Compare to Other Financial Products

It’s important to compare MMAs with other financial products, such as savings accounts and certificates. For example, traditional savings accounts, while offering lower minimum balance requirements, typically provide lower interest rates than MMAs. 

Checking accounts offer similar accessibility but without the advantage of higher interest rates. Share certificates, which are offered by credit unions, can provide higher interest rates than MMAs, but they require you to lock in your money for a fixed period. Early withdrawals can lead to penalties, making them less flexible.

In essence, MMAs occupy their niche as a hybrid product—offering a balance of reasonable interest rates, flexibility, and accessibility.

When to Open a Money Market Account

Opening a money market account can be a smart move if you have a substantial amount of money you want to keep safe while earning a higher interest rate. It’s particularly beneficial if you’re looking for a combination of savings and checking features in one account.

If you’re planning on maintaining a high balance and want the flexibility to access your funds occasionally, an MMA might be an excellent fit for you. It’s also a good choice if you’re saving for a specific goal—such as an emergency fund or a down payment on a home—and you want your money to grow, but still have access to it when needed.

However, if you’re unable to meet the minimum balance requirements or if you might exceed the transaction limits frequently, a regular savings account or a checking account is likely a better option.

Is a Money Market Account Right for You?

A money market account can be a powerful tool for managing your money, offering higher interest rates, accessibility, and safety. However, it’s essential to understand the pros and cons and evaluate your financial situation before opening an MMA. 

If you determine that a money market account isn’t right for you, consider opening a share certificate. It is a simple, secure investment tool that rewards longer terms and higher deposits. Click below to learn more about the similarities and differences between a money market account and share certificate to decide which one is best for you.

Money Market vs Share Certificate – Which One Is Better?

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