Money Market Accounts: What They Are & Who They’re Right For

A money market account is an interest-bearing account that typically pays interest rates higher than a savings account. Your funds are kept liquid, and you’ll earn a lower interest rate than other investments because money market accounts are considered safe investments. Money market accounts give you the ability to write up to six checks per month.

Some money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC), so they have the same $250,000 guarantee that savings accounts and CDs have. You can expect to earn an annual percentage yield (APY) of 2%+ on average with the best money market accounts.

What Are Money Market Accounts?

Money market accounts are more liquid and safer than stocks, bonds, and other investments. They allow access to funds through withdrawals and writing checks, but limit accounts to six transactions per month. The APY of 1.75% to 2.40% is often enough to keep pace with inflation but not much beyond that.

How Money Market Accounts Work

When considering how money market accounts work, first you open your money market account, then deposit your funds, and then earn interest on the funds with an APY between 1.75% to 2.40%. Many money market accounts allow you to write checks, but you’re limited to six transactions per month. If you go over this amount, you might be charged fees between $5 and $15 per transaction or you can lose the privilege of having your money market account.

Similar to a regular savings account, when you deposit money into a money market account it will earn interest over time. Money market accounts typically have daily compounded interest that is paid monthly. Rates are affected by the federal funds rate and generally vary per financial institution as it is a determination of a bank’s cost of capital.

We sat down with Elise Yung, Senior Vice President of Consumer Banking at Axos Bank, who said:

“Money market accounts work very similar to checking accounts and include a set of checks and a debit card. Unlike checking accounts, however, money market accounts have higher interest rates and are limited to six withdrawals or outgoing transfers per statement period. This includes checks, debit card payments, and electronic bill payments. If you anticipate that you will exceed the withdrawal limits, you should consider a high-yield checking account.”

When you manage a money market account, it’s important to keep their restrictions in your mind to avoid any issues or penalties. Think ahead and prepare for your future money needs to maximize your money market account benefits.

Money Market Account Providers

You can open a money market account with a variety of providers. When considering a money market account for you or your business, it’s important to check the available rates with different money market account providers and any potential introductory offers. It’s also crucial to evaluate the accounts minimum balance, minimum deposit, and any account restrictions.

Top Money Market Accounts

Some of the top money market accounts are First Internet Bank, MemoryBank, and Sallie Mae.

1. First Internet Bank

While First Internet Bank doesn’t have an introductory offer, its money market account offers interests rates of 1.80% and 2.00%, depending on your daily account balance. It is a branchless bank that provides FDIC-insured accounts. You can sign up and apply for an account online.

2. MemoryBank

MemoryBank is a branchless, online money market account that offers interest rates of 2.40% on balances up to $1 million. As all deposits are FDIC-insured, you can bank with confidence and save even more with no monthly account fees. MemoryBank makes funding your account easy with credit cards, mobile deposits, wire transfers, or by check.

3. Sallie Mae

Sallie Mae is well-known because of their student loans, but the company also offers FDIC-insured money market accounts with interest rates of 2.20%. Sallie Mae is ideal for investors who want to earn attractive money market rates and feel more comfortable working with a government-sponsored provider.

Who a Money Market Account Is Right For

Money market accounts can be a great option to save money for both individuals and small business owners. They’re especially good if you want a relatively safe investment, need to keep your money liquid and don’t mind earning APYs up to 2.40%.

Some situations where you may want to open a money market account are:

• Want a relatively safe investment: Some, but not all, of the best money market accounts are insured by the FDIC up to $250,000, which means if your bank goes out of business, the funds you had in your account are protected up to the $250,000 limit
• Need to keep their money liquid: This is better than a CD because you can access your funds on demand; as long as you keep your transactions to a minimum with a money market account, you can often write checks or access your funds via a debit card, which can be a huge advantage
• Don’t mind earning APYs up to 2.40%: It’s lower than other investments, but that’s offset by the safety you get from FDIC insurance, and the ease with which you can access your funds; if you want a greater return, then you should consider another option

It’s important to note that money market accounts for nonbusiness owners work the same as they would for business owners. However, they do provide benefits to business owners that can help improve their cash flow and how to maximize their working capital.

Money Market Accounts Rates

Money market accounts rates, or the APY, generally range between 1.75% and 2.40%. Most often, you can earn more interest with the more money you deposit into your account. However, there are some accounts that set a maximum balance you can earn interest on. For example, some accounts may only allow you to earn interest on up to $50,000.

The national rate is calculated by the FDIC as an average of rates paid by all insured depository financial institutions that make their data available. We pulled the below chart from Federal Reserve Economic Data (FRED), which shows the national average rate on deposits less than $100,000:

Money market accounts rates fluctuate in relation to the federal funds rate, which helps determine a banks cost of capital. Essentially, this is how much a bank will charge to lend money to another financial institution. Banks rates are also generally competitive, meaning they will try to offer a better rate compared to other providers.

Money Market Account Costs

Costs of a money market account typically vary per provider as each set their own guidelines. Common costs associated with money market accounts include monthly account service fee, withdrawal fees, debit fees, and a fee associated with cashier’s check orders. You can avoid some of these fees by staying within six transactions per month and maintaining a certain minimum balance set by your provider.

The general costs of money market accounts are:

• Monthly account fees: $5 to $15; waived if you maintain a certain minimum account balance set by your provider
• Transaction fees: Six free transactions per month; each transaction thereafter costs $5 to $15, or you can lose the privilege of having a money market account
• Cashier’s check fees: $0 to $15 per cashier’s check

Most providers have a minimum balance requirement you must maintain. If you fail to meet that requirement, they typically charge your account a monthly account or service fee. They also may ding your account for processing more than six transactions in a month. Be careful, however, as some providers have restrictions set in place that can cancel your money market account for too many transactions.

Money Market Account Restrictions

Similar to high yield savings accounts, money market accounts have restrictions that limit the actions you can take on your account. Due to Regulation D put in place by the Federal Reserve, money market accounts are limited to six withdrawal transactions per month. If you go over the allowable amount, your bank can charge you a fee, close your account, or convert it to a checking account.

Other Money Market Account Considerations for Business Owners

In addition to withdrawal limitations, if you’re applying for a business loan, you most likely won’t be able to pledge your money market account as collateral. Due to the check writing privileges, most banks require that you transfer the funds into a saving account or CD before being used as collateral on a transaction.

We sat down with Steve Freshour, head of small business banking at Axos Bank, to discuss things business owners should focus on beyond this and Regulation D. He offered insight on tax implications and said:

“Money market accounts are interest-bearing accounts, which means account holders will receive interest payments. As such, they will receive a 1099-INT form showing accrued interest payments. Business owners should consult with their tax advisor regarding the tax implications. Certain money market accounts also require minimum average daily balances to avoid fees.”

Whether you’re an individual or business owner, it’s important to think ahead if you have something going on where you may need to access money from your money market account. If this is the case, move it proactively to avoid any complications.

Money Market Accounts vs Alternatives

It’s important to not confuse money market account with other accounts like savings accounts, certificate of deposits, and money market funds. Some of the most common differences include account restrictions, interest rates, ability to write checks, and accessibility to your money.

Money Market Accounts vs Savings Accounts

Some of the main differences between money market accounts and savings accounts include lower interest rates with savings accounts and a high minimum deposit for money market accounts. Compared to a regular savings account, money market account providers typically allow you to write up to six checks per month.

The common features of a regular savings account are:

• Competitive interest rates with money market accounts
• No ability to write checks against your account
• Up to six withdrawals per month before a penalty
• Typically no minimum deposits or daily balance

Although the interest rates are competitive for both, you might be able to find a money market account provider that offers a low minimum deposit and higher interest rate than most savings accounts.

Money Market Accounts vs Certificate of Deposits

Most of the time CDs pay higher interest than money market accounts, but you will have to store your money for a longer period of time. CDs only allow you to withdraw your funds after your term is up, which can be up to ten years.

The common features of a certificate of deposits are:

• Higher interest rates between 2.00% and 3.15%
• Term lengths between three months to 10 years
• Lower minimum balance requirement

The best CD rates will usually have a longer term length. If you know you won’t need to withdraw your money in the near future and you want to maximize your interest earnings, a CD would be an excellent option for you.

Money Market Accounts vs Money Market Funds

Although the names are similar, a money market account and money market funds are very different. Money market accounts are available at most banks and are insured by the FDIC up to federal limits. Money market funds, on the other hand, are mutual funds that invest in low-risk securities including Treasury bills and commercial paper.

Most of the time to open a money market fund, you’ll need to go through a broker rather than a bank. Since MMFs aren’t backed by the FDIC, the most secure place to hold your money would be in a money market account. A money market fund would be a good option if you want to get into some investments while keeping your risk low.

Pros & Cons of a Money Market Account

Money market accounts can be an excellent way to securely put your money away while earning high interest every month. In addition to this, with a money market account, you will have the benefit of the ability to write checks and have your money guaranteed by the FDIC. However, the high returns and security come at the expense of balance requirements and account limitations.

Pros of a Money Market Account

The positives of money market accounts are:

• Earn interest rates up to 2.40%: If you open a money market account, you can quickly start earning up to 2.40% in interest; they’re competitive with regular savings accounts; however, they tend to be more liquid and serve as a relatively safe investment.
• Write up to six checks per month: Compared to other accounts such as savings accounts and CDs, some money market accounts allow you to write checks; money market account providers generally limit your account to six checks per month
• Relatively safe investment: Some money market accounts are FDIC-insured up to the federal limit: $250,000; this means if the bank goes out of business, your funds will be guaranteed up to the federal limit

Cons of a Money Market Account

The negatives of a money market account are:

• High minimum balance requirements: Some of the best money market accounts require that you maintain a high minimum balance; if you don’t meet this requirement, it’s likely you will have to pay a monthly fee between $5 to $15 depending on your provider
• Account withdrawal penalties: Money market accounts limit your account to six withdrawals per month and, if you go over this limit, your account can be canceled or converted to a checking account; it’s important to plan ahead if you know you will need some of your funds from your money market account to avoid any complications
• Inflated introductory interest rates: Some money market accounts offer attractive introductory rates for the first 12 months that may motivate you to sign up; however, be wary of these as the rates typically drop drastically once the promotional period ends

Money market accounts can be an excellent safe investment to hold your funds if you think you may need to access them at any moment. You can avoid additional fees and penalties if you maintain the minimum balance put in place by your provider and limit your transactions to six per month.

Frequently Asked Questions (FAQs) About Money Market Accounts

We covered a lot of information in regard to money market accounts, who they are best for, and some of the top providers. There are some questions that are asked more often than others, and we address those here. If you have any other unanswered questions, please feel free to share them on the FitSmallBusiness forum, and we’ll provide an answer.

Are Money Market Accounts FDIC-insured?

Some money market accounts are insured by the FDIC up to the federal limit of $250,000. If your bank or account provider goes out of business, you don’t lose any of your funds. Make sure to not confuse these accounts with money market funds, which aren’t FDIC-insured.

When Should I Open a Money Market Account?

Money market accounts are excellent interest-bearing accounts made available through several different providers. You should consider opening a money market account if you want to earn high interest on your savings, easy access to your funds, or the ability to withdrawal and write checks against your account.

What Is the Best Money Market Account for Business Owners?

The best money market accounts for business owners are typically based on interest rates and the maximum allowable limit to earn interest on. This is especially important for businesses that plan on having high account balances and want to maximize their earnings. Some common benefits for business owners include keeping funds liquid and in a safe investment.

Can a Small Business Use a Money Market Account?

A money market account for your business can keep your funds liquid, earn a low ― relative to traditional investments ― interest rate of 2% on average, and serve as a safe investment. The low-interest rates are a trade-off for the liquidity you get and the safety provided by FDIC-insured money market accounts.

The Bottom Line

Overall, money market accounts are best for businesses that want to put their money in an interest-bearing, safe investment that is sometimes insured by the FDIC up to $250,000. Money market accounts are typically an inexpensive account option as long as you stay within the account limitations and maintain the required minimum balance.

If you’re ready to open a money market account, read our buyer’s guide that lays out the 15 best money market accounts and rates. We evaluate different costs, restrictions, and rates to help you find an account that fits your needs.

Read Our Buyer’s Guide