What is a Money Market Account?

Get to know the definition and how money market accounts work.

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. People search for a money market savings account definition more than 12,000 times each month. Here are the answers to the most frequently asked questions about MMA money market accounts.

So what exactly is a money market account?

Despite its name, a money market account (MMA) has nothing to do with the stock market. An MMA is defined as a unique savings account that generally earns you a higher savings rate than traditional savings accounts and offers some check-writing options. However, Capital One® 360 Money Market® accounts don’t come with checks.

Also, 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 Capital One 360 Money Market accounts don’t require a minimum balance to open or maintain an account—you only need a higher minimum balance to earn the higher rate.

What's the difference between money market accounts, savings accounts and CDs?

While a money market savings account is a type of savings account, it's different than your typical savings account. 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—in other words, the APY (along with how much money you have in your account) determines how much your account will earn in interest each year.2

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. With a Capital One 360 Money Market account, you need a balance of at least $10,000 to get the highest rate.

While searching for what a money market savings account is, you may have come across another type of savings account called a certificate of deposit, or a CD. This is a type of savings account that requires you to deposit money for a specific amount of time, called a term. Typically, the longer the term, the higher the APY. The biggest difference between a CD and a money market account is that with a CD, you have to keep your money within the account for the term. (If you take it out early, you might have to pay a penalty.) Once the term is over, most CDs allow you to access your money, plus any interest earned. With a money market account, you can usually access your money without having to face penalties.

So what does a higher APY mean for your money? See how much you could earn in interest from each type of account below.

Money market account vs. savings account vs. certificate of deposit.



Savings account Money market account Certificate of deposit
Initial deposit $10,000 $10,000 $10,000
Annual percentage yields (average) 0.09%

3

0.29%
on balances of $10,000+

4

0.64%
Balance after one year $10,009 

5

$10,029 

5

$10,064 

5

Please keep in mind that this table is used for educational purposes. It doesn’t represent Capital One’s product rates or features.

How does a money market account compare to a high-yield savings account?

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 “convenient” withdrawals or transfers 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.

How does a money market account work?

If you're looking into opening a money market account, how it works might be of interest to you. For customers, a money market account works similar to a savings account: You deposit your savings into the account, you start earning interest and your money is available when you want it. How often do money market accounts pay interest? While it depends on your bank and your specific account, MMAs are usually compounded daily and paid monthly.10 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

How safe are money market accounts?

When it comes to your savings, you want to know your money is safe. At insured banks and institutions, it is. If your bank fails, your money is secure because the Federal Deposit Insurance Corporation (FDIC) promises to insure your money up to the allowable limits.8

Benefits and disadvantages of a money market account

If you’re thinking of opening a money market account, hold onto this list so you can have the pros and cons handy. It’s important to know the benefits and advantages of a money market account, as well as any disadvantages.

Pros:

  • They usually have higher savings interest rates than a typical savings account.
  • They are typically FDIC-insured.
  • Most MMAs allow you to have access to your money.

Cons:

  • There might be a minimum balance to receive the higher savings interest rate.
  • There is a limit to how many times you can access your money a month. "Convenient" withdrawals or transfers are limited to 6 times a month.

How do I choose the best money market account?

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 that your return could be greater than what you could earn in the first year with any other interest rate on the market on its own.

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.

Should I open a money market account?

As you consider whether or not a money market account is right for you, it helps to keep in mind these things:

  • 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.
  • If you're inclined to make frequent withdrawals, a checking account might be a better option.
  • If you can't afford the minimum balance, a traditional savings account may suit you better.
  • If you'd like to have some accessible savings, rather than locking your money away in a CD, a money market account could be a good way to achieve that while still earning interest.
  • If you already have the minimum balance needed to take advantage of higher interest sitting in another savings or checking account, it might be time to open a money market account.

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.

Citations

  1. 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

  2. “Annual Percentage Yield – APY.” (February 2, 2018). Retrieved June 8, 2018, from: https://www.investopedia.com/terms/a/apy.asp

  3. 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

  4. “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

  5. “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

  6. 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

  7. “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

  8. Federal Deposit Insurance Corporation. (January 31, 2018). Retrieved June 8, 2018, from: https://www.fdic.gov/deposit/covered/notinsured.html

  9. Money Market Accounts | Money Market Rates. (n.d.). Retrieved June 22, 2018, from: https://www.nerdwallet.com/rates/money-market-rates

  10. (April 14, 2008). How do money market accounts work? Retrieved July 15, 2019 from https://money.howstuffworks.com/personal-finance/financial-planning/money-market-accounts1.htm

You May Also Like