Money market account

A money market account sits between the two accounts most people already have. It pays interest the way a savings account does, at a variable rate quoted as an APY, and it can be spent from directly the way a checking account can, by check or debit card, within limits many banks set on how often. It is a bank deposit, insured to the same limit as any savings account, and it is not the money market fund with the almost identical name, which is an investment sold by a brokerage with no insurance on the balance. The rate is often tiered, so a larger balance earns a higher rate.

In a sentence

• "The house fund sits in a money market account at 3.75% APY, and the earnest money check was written straight from it."
• "A money market account is a bank deposit with insurance; a money market fund is an investment without it."
• "Her money market account pays its top rate only on balances of $10,000 and up, so she keeps the balance above the line."

How it works

1. Open it at a bank or credit union, usually with a minimum opening deposit; some accounts waive a monthly fee only above a minimum balance.
2. Interest accrues daily and is credited monthly at a variable rate the bank can change at any time. Many accounts tier the rate, so a balance above a threshold earns the top rate and a smaller one earns less.
3. Spend from it directly, by check, debit card or transfer. Many banks cap the number of checks, card purchases and transfers a month.
4. The balance is insured up to $250,000 per depositor, per institution, per ownership category, by the FDIC at a bank and by the NCUA at a credit union.

Interest for a year = balance × APY

The money market account earns like the second row and spends like the first; the minimum and the cap are the price of the combination.

An example

The example assumes a money market account that pays 1.00% APY on balances under $10,000 and 3.75% APY on the whole balance from $10,000 up, each balance held for a year with nothing added; the tiers and the rates are the example's inputs, not a claim about today's market.

The $15,000 balance earns $562.50; the same money in a high-yield savings account paying 4.00% APY, another of the example's inputs, would earn $600, and the $37.50 is the price of the checkbook, worth paying only if checks or card payments actually come out of the account. The $9,000 balance earns $90, which is why a tiered account is watched: a withdrawal that drops the balance below the threshold cuts the rate on all of it.

Why it matters

The account decides where cash goes that must both earn and be spent from now and then: a house fund that will write one large check, or the reserve a landlord or a small business keeps. The term also prevents two mistakes at the boundary with its neighbors. One is treating the money market fund at a brokerage as if it carried the insurance of the account with the near-identical name. The other is paying for access you never use: an account whose rate trails a high-yield savings account and whose checkbook stays in the drawer is a savings account with a worse rate.

Money market account versus money market fund

A money market account is a deposit at a bank; a money market fund is an investment bought through a brokerage. The account's balance is insured to the federal limit, pays a rate the bank sets, and is spent by check or card. The fund holds short-term government and corporate debt, pays whatever those holdings yield, is not insured, and is sold rather than withdrawn; its share price is managed to stay at $1, which is a practice rather than a guarantee. Against a savings account, the money market account is the same deposit with a checkbook and, often, a minimum; a high-yield savings account frequently pays more for the same insurance, without the access.

Common questions

Is a money market account the same as a money market fund? No. The account is a bank deposit, insured up to $250,000 per depositor, per institution, per ownership category, with a rate the bank sets. The fund is a mutual fund held at a brokerage, uninsured, with a yield that follows short-term interest rates and a share price managed to hold at $1. The name is the only thing they share.

Is a money market account the same as a savings account? Nearly. Both are insured deposits paying a variable rate quoted as an APY. The money market account adds checks or a debit card, often asks for a minimum balance, and often tiers its rate by balance; a savings account usually has none of the three. Which pays more depends on the bank and the day.

What is a good money market account rate? One that matches the high-yield savings accounts available the same day, or comes close enough that the checkbook is worth the gap. Rates move with the Federal Reserve's short-term rate, so compare accounts against each other on the same day, and read the tiers, since a headline rate may apply only above a large balance.

Can a money market account replace my checking account? Rarely well. Many banks cap the number of checks, card purchases and transfers a month, and the minimum balance may be higher than a checking account's. It suits a few large payments a month from money that is otherwise sitting still.

Go deeper

• How to build an emergency fund inside a monthly budget keeps the fund in a separate account that pays interest and stays at face value.
• The Savings goal calculator works out what to set aside each month to reach a goal by a date, with the account's interest counted along the way.

Where it shows up in Zypper

Zypper connects a money market account as a savings account. Checking and savings accounts, including money market accounts and CDs, connect through your bank and sync automatically every day; savings accounts feed your transactions, budget and cash flow, and the balance counts toward net worth, charted over time. When money moves between your own accounts, both sides show up as transactions, and Zypper links them as one transfer so the move from checking never reads as income and spending. See Supported account types and Splitting and linking transactions for the details, or get started with Zypper to see it beside your other accounts.