When it comes to your savings, you want to know everything about where you’re putting your money and if you’re getting the most from it. If you’ve heard of a money market account but don’t really know what it is, you’re not alone. The question “what is a money market account?” is searched online more than 12,000 times each month by people looking for the definition of a money market account. Here are the answers to the most frequently asked questions about MMA savings.
Despite its name, a money market account (MMA) has nothing to do with the stock market. An MMA is a unique savings account that generally earns you a higher savings rate than traditional savings accounts and offers some check-writing options. But with the higher savings return benefits of a money market account, there may be certain restrictions. Often, MMA savings can require a higher minimum balance than traditional savings accounts.1
Overall, the greatest difference between a money market account vs. a savings account is the Annual Percentage Yield (APY). The APY is the effective annual rate of return with compounding interest—in other words, the APY determines how much your account will earn in interest each year.2
So what does a higher APY mean for your money? See how much you could earn in interest from each type of account below.
|Savings account||Money market account|
|Interest rates (average)||0.14% 3||1.675% 4|
|Balance after one year||$10,014 5||$10,168 5|
Money market savings accounts generally require you to maintain a higher balance to earn the higher rate. Depending on the account, this could be a few hundred dollars or more than $10,000.
When you’re considering a money market account vs. a high-yield savings account, you’ll find them to be very similar at first glance. Both usually require a higher minimum deposit, both offer comparable interest rates and both usually have similar restrictions on the number of withdrawals you’re allowed to make.
The main difference is that money market savings accounts are usually used for more long-term savings goals while high-yield savings accounts are used for shorter-term goals.6 Either way, both could help your savings grow.
For customers, a money market account works similar to a savings account: You deposit your savings into the account, you start earning returns and your money is available when you want it. So why the higher savings rate? What’s the catch? Generally, the bank is giving you extra interest for keeping extra money in your account. The bank rewards you with the higher APY incentive if you meet certain restrictions, because the bank may loan your money out to those who need it or make other money market investments in the stock market.7
When it comes to your savings, you want to know your money is safe. It is. No matter what happens to the bank, your money is secure because the federal government promises to cover your money market account balance. The Federal Deposit Insurance Corporation (FDIC) insures each depositor up to the allowable limits.8
Most major banks and many credit unions offer money market accounts, but they’re not all the same.9 The first thing to consider is the savings rate. As you’ve seen, a higher savings rate can earn you more money. However, you should also consider any promotions a bank may offer. Many banks will provide a cash bonus when you open a new account. This bonus could mean your return in the first year is even greater than most any other interest rate on the market.
Next, you’ll want to find out if there are fees and how these fees might affect your savings. Some accounts are free as long as you maintain the minimum balance, but it’s always a good idea to check the fine print.
Finally, you should understand how much you can afford to save. You want to ensure you have enough money available for your day-to-day spending. When you research the minimum balance requirements and transaction restrictions, you want to know you can comfortably afford to meet the conditions on a regular basis.
As you consider whether or not a money market account is right for you, it helps to keep in mind how you currently use your savings. If you usually just keep your savings for a rainy-day fund, a money market account is a great way to earn interest on the money you already have. However, if you’re inclined to make frequent withdrawals or can’t afford the minimum balance, a traditional savings account may suit you better. Either way, there are advantages of money market accounts as well as savings accounts, so the right one for you completely depends on your situation. And as you consider your circumstances and available options, keep in mind that your money management skills are growing as well as your savings.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Goldberg, M. (July 11, 2018). What Is a Money Market Account? Retrieved August 6, 2018, from https://www.bankrate.com/finance/savings/money-market-accounts-vs-savings-accounts.aspx
“Annual Percentage Yield – APY.” (February 2, 2018). Retrieved June 8, 2018, from: https://www.investopedia.com/terms/a/apy.asp
Moon, C. (May 4, 2018) Based on the average of all the rates shown in “Average Savings Account Interest Rates for 2018: Compared Across Banks.” Retrieved June 8, 2018, from: https://www.valuepenguin.com/average-savings-account-interest-rates
“Money Market Account & Rates for June 2018.” (n.d.) Based on average rate of the “Best Money Market Accounts & Rates of June 2018.” Retrieved June 22, 2018 from: https://www.bankrate.com/banking/money-market/rates
“CD Calculator.” (n.d.). Based on daily compound interest for 12 months using 0.14% APY and 1.60% APY. Retrieved June 8, 2018, from: https://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx
Makofsky, N. (April 2, 2018). Money Market vs. High-Yield Savings. Retrieved June 26, 2018, from https://budgeting.thenest.com/money-market-vs-high-yield-savings-3643.html
“What is a money market account?” (March 18, 2016). Retrieved June 8, 2018, from: https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-915
Federal Deposit Insurance Corporation. (January 31, 2018). Retrieved June 8, 2018, from: https://www.fdic.gov/deposit/covered/notinsured.html
Money Market Accounts | Money Market Rates. (n.d.). Retrieved June 22, 2018, from: https://www.nerdwallet.com/rates/money-market-rates