Money market accounts (MMAs) tend to offer a high annual percentage yield (APY) while giving you easier access to your money than you'll have with a traditional savings account. Some of the best MMA accounts have an APY of 4% to 5%. In comparison, the national average is around 1%.
Money Market Accounts
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Money Market Account Rates
| National Average Money Market Rates by Institution Type | |
|---|---|
| Institution Type | Rate |
| Bank | 0.49% |
| Credit union | 0.73% |
| Online bank | 2.08% |
Source: Curinos LLC as of October 4, 2024; $2,500 deposit amount
You may also find that APYs depend on where the banks and credit unions are located. Online banks tend to offer the highest APY, but even online-only banks are sometimes unavailable to residents of specific states.
| Average MMA Rate by State | |
|---|---|
| State | Average Rate |
| Alabama | 0.94% |
| Alaska | 1.56% |
| Arizona | 1.17% |
| Arkansas | 1.12% |
| California | 0.64% |
| Colorado | 1.09% |
| Connecticut | 1.20% |
| Delaware | 1.59% |
| District of Columbia | 1.55% |
| Florida | 0.73% |
| Georgia | 1.00% |
| Hawaii | 1.68% |
| Idaho | 1.29% |
| Illinois | 0.66% |
| Indiana | 0.84% |
| Iowa | 0.81% |
| Kansas | 1.12% |
| Kentucky | 0.88% |
| Louisiana | 0.98% |
| Maine | 1.50% |
| Maryland | 1.17% |
| Massachusetts | 0.73% |
| Michigan | 0.86% |
| Minnesota | 1.00% |
| Mississippi | 0.89% |
| Missouri | 0.67% |
| Montana | 1.32% |
| Nebraska | 1.15% |
| Nevada | 1.30% |
| New Hampshire | 1.18% |
| New Jersey | 1.04% |
| New Mexico | 1.16% |
| New York | 0.72% |
| North Carolina | 1.06% |
| North Dakota | 1.41% |
| Ohio | 0.81% |
| Oklahoma | 1.35% |
| Oregon | 0.93% |
| Pennsylvania | 0.80% |
| Rhode Island | 1.51% |
| South Carolina | 1.25% |
| South Dakota | 1.52% |
| Tennessee | 0.83% |
| Texas | 0.93% |
| Utah | 1.44% |
| Vermont | 1.46% |
| Virginia | 1.08% |
| Washington | 0.79% |
| West Virginia | 1.32% |
| Wisconsin | 0.78% |
| Wyoming | 1.39% |
Source: Curinos LLC as of October 4, 2024; $2,500 deposit amount
What Is a Money Market Account?
A money market account (MMA) is a type of savings deposit account that combines the features of checking and savings accounts—some people describe them as hybrid accounts. The main features are:
- Higher interest rates: Generally, MMAs offer a higher interest rate than checking or savings accounts, even higher than some high-yield savings accounts.
- Insured savings: FDIC or NCUA insurance at eligible banks and credit unions, respectively, also applies to MMAs. The insurance covers up to $250,000 per depositor, per ownership category, protecting you from losses if the bank fails.
- Easy access to your money: Unlike with a savings account, you can easily access and spend your money using checks or a debit card.
- Potentially high balance requirements: Some MMAs have higher initial deposit requirements than traditional savings accounts. You may also need to maintain a high balance to avoid fees or earn interest.
- Potential withdrawal limits: Similar to other savings deposit accounts, you may be limited to six convenient withdrawals each month, including withdrawals via check, debit card and online transfers. But financial institutions can choose to offer MMAs without these limits.
Many banks and credit unions offer MMAs, and opening an account is similar to opening other types of bank accounts.
How Much Interest Will I Earn With a Money Market Account?
Your interest earnings will depend on how much you deposit in the account, how long you keep the money in the account, the account's APY and whether the APY changes.
For example, if you deposit $10,000 into an MMA that has a 2% APY, you could earn $200 if you keep the money in the account and the APY stays the same for an entire year.
Actual interest earnings with an MMA can vary significantly because many people will deposit and withdraw money from their account throughout the year. The account's APY will also likely increase or decrease during the year.
But, all else being equal, an account with a higher APY will lead to more interest earnings. And MMAs tend to offer higher APYs than many checking and savings accounts.
Pros and Cons of Money Market Accounts
| Pros of Money Market Accounts | Cons of Money Market Accounts |
|---|---|
| Might offer a higher APY than traditional savings accounts | Other savings and investment options could offer even higher returns |
| Easily access your money with a check, debit card or transfer | May be monthly limits on convenient withdrawals |
| May be covered by $250,000 in FDIC or NCUA insurance per depositor, per ownership category | You may need to deposit a lot of money to open an account and avoid monthly fees |
Who Should Get a Money Market Account?
Considering how MMAs work and the pros and cons, you may want to get an MMA if:
- You have a short- or medium-term savings goal. An MMA could be a good fit if you're maintaining an emergency fund or saving up for a large purchase.
- You don't want to risk losing your money. As long as you're under the $250,000 insurance limit, you don't risk losing the money you deposit in an MMA. But there is still inflation risk—the risk that inflation will be higher than your APY and you'll lose purchasing power over time.
- You have a lot of savings. Some of the best MMAs don't have high balance requirements. But there are MMAs that only pay interest, or only give you a high APY, if you maintain a large minimum balance.
- You want easy access to your money. Accessing your savings with a check or debit card can be convenient, especially if your account doesn't limit your monthly withdrawals. If you tend to overspend, limiting access to your savings might make growing your savings easier.
Learn more >> Reasons to Get a Money Market Account
How to Choose the Best Money Market Account
The best money market account could depend on the current offerings from various financial institutions and how much money you plan to deposit and keep in the account. You could review the following terms and conditions to find out which MMA will be best for you:
- APY amounts and tiers: Look past the advertised rate and see what you'll need to do to receive the APY. For example, some MMAs have promotional rates or tiered rates that depend on your daily balance or whether you have other accounts at the financial institution.
- Deposit requirements: See if you can comfortably meet the minimum opening deposit requirement. Additionally, look for minimum balance requirements for avoiding monthly service fees and earning a good interest rate.
- Account access: Find out if you can write checks, receive a debit card or easily access your account with a mobile app if these options are important to you.
- Fees: In addition to monthly maintenance fees, look for common money market account fees, including overdraft, insufficient funds, ATM, foreign exchange and excessive withdrawal fees.
- Withdrawal limits: Banks and credit unions can choose to limit how many "convenient transfers and withdrawals" you can make from your account each month. These could include when you use a check, debit card, online transfers, automatic transfers and Automated Clearing House (ACH) transfers. If there's a limit on your account and you try to exceed it, the financial institution could charge you a fee, deny your transaction or even close your account and move your money to a checking account.
The APY, features and fees can vary from one institution to another. In general, online banks offer the best APY.
Once you've compared accounts, opening a new MMA and moving your savings won't take long. If you want to move all your banking activity to the new account, make sure you update any automatic payments you had set up with your previous account.
Learn more >> How to Open a Money Market Account
Alternatives to Money Market Accounts
Several common alternatives to MMAs include a certificate of deposit (CD), a high-yield savings account and an investment account.
| CD | High-Yield Savings Account | Investment Account | |
|---|---|---|---|
| Average APY | 2.84% for one-year term* | 1.90%* | N/A |
| FDIC or NCUA Insurance? | Yes | Yes | No |
| Easy access to funds? | No | Yes | Yes |
| Fees | For early withdrawals | Varies but may include monthly maintenance, overdraft, ATM, nonsufficient funds, excess withdrawal and wire transfer fees | For certain types of trades |
*Source: Curinos LLC as of October 2024 for a one-year CD with a $10,000 balance and a high-yield savings account with a $2,500 deposit
Comparing APYs is important, but also consider how each type of account works.
- Certificate of deposit: A CD could be a better fit if you're looking for a safe place to keep savings that you're setting aside for longer-term goals. You might receive a higher APY than you could get with an MMA, and your savings could still be covered by FDIC or NCUA insurance. But depending on the type of CD, you may need to agree to keep your money locked in the CD or pay an early withdrawal fee.
- High-yield savings account: A high-yield savings account (HYSA) is similar to an MMA, but you generally won't receive checks or a debit card tied to the account. A HYSA might be a better option if you intentionally want to make spending your savings a little more difficult, or if the HYSA has a higher APY than you can find on an MMA. You might still have relatively easy access to your money if you can withdraw money from a branch or ATM, or quickly transfer funds to another account online.
- Investment account: Investing might be a better fit for longer-term financial goals, such as retirement or a large purchase that's more than a couple of years away. There are low-cost brokerage accounts and robo-advisors that can make investing inexpensive and simple. Retirement accounts can also offer tax advantages that could increase your long-term returns. However, unlike savings, investing always comes with a risk of losing the money you invest.
Frequently Asked Questions
Money market accounts are a type of savings account. Despite the similar name, money market funds are a type of mutual fund that you can purchase in a brokerage account rather than a savings account.
Money market funds (MMFs) could be a relatively safe investment. The funds generally hold low-risk assets, try to maintain a $1 per share valuation and pay a monthly dividend that's similar to receiving monthly interest payments. However, mutual funds aren't covered by FDIC or NCUA insurance, and there's still a chance you'll lose money when you invest.
Learn more >> How Do Money Market Funds Work?
Money market accounts are generally considered just as safe as checking or savings accounts. Most banks and credit unions have FDIC or NCUA insurance, respectively, guaranteeing that at least $250,000 you keep at the company will be safe even if it goes under.
Your purchasing power—how much you can purchase with each dollar—might decrease if the APY is lower than the current inflation rate. But your MMA balance will never go down unless you withdraw money.
Banks and credit unions can choose the interest rate, compounding period and the resulting APY that they offer on their MMAs. Generally, the current federal funds rate has a large impact on the APY. When the Federal Reserve increases or decreases the federal funds rate, financial institutions might also increase or decrease the APY on their MMAs.
Financial institutions also often consider other factors when setting their rates. For example, a company that's trying to grow its deposits might increase the APY on its accounts to attract new customers. Or, it might use a specific strategy, such as offering an exceptional APY on MMA accounts that meet a high minimum balance requirement.
On the other hand, financial institutions might be quick to drop rates and slow to increase rates if they aren't focused on growth, especially if they know they'll likely keep many of their existing customers.
Learn more >> How to Switch Bank Accounts
Similar to other savings accounts, money market accounts have a variable APY. The bank or credit union can increase or decrease the APY on your account at any time and without notifying you ahead of time. Your savings will then continue earning interest based on the new APY.
You can open a certificate of deposit (CD) if you want a fixed APY for your savings. However, you generally can't withdraw money from a CD before it matures without paying an early withdrawal penalty. Some CDs don't charge a penalty, but they also tend to have lower APYs.
The interest you earn in a money market account is taxable income, similar to earning interest from other types of savings accounts. If you earned at least $10 in interest during the year, the financial institution should send you and the IRS a 1099-INT form around the beginning of the following year. The form tells you how much interest you earned, and you can use it to prepare your tax return. But even if you don't receive this form, you're still required to calculate and report your interest earnings from money market accounts.
Find the Best Place for Your Savings
Earning a good return on your savings can help you reach your financial goals sooner. Investing in brokerage and retirement accounts might be good options for long-term savings or when you don't mind taking on risk. But if you need a safe place and guaranteed returns, compare high-yield savings accounts, CDs and money market accounts.