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You can earn interest by depositing your savings into a money market account (MMA). In fact, MMAs often offer a higher interest rate than checking accounts, and sometimes have higher rates than savings accounts as well. However, MMAs work a little differently than these common types of bank accounts, so consider the pros and cons before opening one.
Do Money Market Accounts Earn Interest?
Money market accounts are a type of savings deposit account, and they often pay interest like other savings accounts.
The main differences between the two are that MMAs may require a higher minimum opening balance and have higher monthly balance requirements to avoid fees or earn interest. MMAs also come with checks or a debit card, making it easier to spend your money.
Find Money Market Accounts
You can find and open MMAs at traditional banks, online banks and credit unions, and the interest rate may depend on the financial institution and your balance. Sometimes, MMAs offer higher annual percentage rates (APYs) than savings accounts, which can make them appealing if you have a lot of short-term savings.
However, compare current high-yield savings account APYs with the MMA rates, because sometimes savings accounts offer a higher rate with fewer requirements.
Pros and Cons of Money Market Accounts
MMAs can be appealing because of their flexibility and high APYs, but there are pros and cons to consider.
Pros
- Many options available: You can find MMAs at many banks and credit unions.
- High APYs: Earn more interest than you might with other types of checking or savings accounts.
- Easy access to your money: You can easily spend your money using the account's checks or debit card.
- Covered by deposit insurance: MMAs are generally covered by insurance at banks and credit unions, guaranteed up to $250,000 per account holder and account category in case the financial institution fails.
Cons
- High balance requirements: There may be high balance requirements to open the account, receive a good APY or avoid monthly maintenance fees.
- Potential limitations on withdrawals: Your financial institution might limit you to six withdrawals each month. But in-person, mailed, phone and ATM transactions don't typically count toward that limit.
- Don't always offer the best rates: Some regular savings accounts have higher APYs than MMAs.
Money Market Accounts vs. Money Market Funds
Some people confuse money market accounts with money market funds because of the similar names, but they're very different.
Money market funds (MMFs) are mutual funds, a type of investment that you can buy within a brokerage account or certain retirement accounts. These are often relatively safe mutual funds that invest in government-backed assets, and you might receive monthly dividends—almost like getting interest from a savings account.
However, unlike MMAs, the funds in an MMF aren't insured. You also may need to sell your investments and transfer the money from a brokerage account to your bank account before you can spend it.
Is a Money Market Account Better Than a Savings Account?
MMAs and savings accounts are both types of savings deposit accounts, and neither is universally better or worse.
An MMA might be a good fit if you have enough savings to qualify for a high APY or you want easy access to the money you keep in your interest-bearing account. However, if you find a savings account with a higher APY, that might be a better place to keep your savings. And if you have a checking account at the same institution, you might be able to quickly transfer money between the accounts and then use a debit card or checks.
Keep Reviewing Your Options to Find the Best Rate
Regularly opening and closing savings accounts can be a hassle, but you may want to keep an eye on the options as rates change. Even if the account you open today offers the best rate, that might not be the case in a few months. And if you have a lot of savings or interest rates keep rising, setting aside time to make a change could be worth it.