Money Market Accounts
Money market accounts (MMAs) are FDIC-insured deposit accounts offering higher interest rates than traditional savings accounts while maintaining liquidity. They typically require higher minimum balances ($1,000-$25,000) and may limit monthly withdrawals, but provide check-writing and debit card access unlike CDs. As of 2024, competitive MMAs offer 4-5% APY.
MMAs sit between savings accounts and CDs in the liquidity-yield spectrum. They pay more than savings but less than CDs, while offering more liquidity than CDs but less than checking accounts. This makes them ideal for emergency funds, short-term savings goals, or parking cash between investments. The FDIC insurance ($250,000 per account) provides security comparable to Treasury bills.
Online banks offer the best MMA rates due to lower overhead. Compare APY (annual percentage yield, which includes compounding) rather than APR. Watch for tiered rates - some MMAs pay higher rates only on balances above certain thresholds. Also check fees, minimum balance requirements, and withdrawal limits. Maintain balances above minimums to avoid fees that could eliminate interest gains.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
MMAs typically offer higher interest rates, check-writing privileges, and debit cards, but require higher minimum balances. Both are FDIC-insured and limit withdrawals to 6 per month (though this was relaxed in 2020).
Yes, if FDIC-insured. MMAs at banks are protected up to $250,000 per depositor, per institution. Don't confuse with money market mutual funds, which aren't FDIC-insured but are still very safe.
No (assuming FDIC-insured bank). Unlike money market mutual funds which can theoretically 'break the buck,' bank MMAs guarantee your principal plus interest. Worst case is interest rates drop and you earn less, but you won't lose deposits.
Good for emergency funds (3-6 months expenses) and short-term savings. If you need full liquidity, split between high-yield savings (instant access) and MMA (slightly higher rate, limited transactions).
MMAs for funds you might need access to - better liquidity but slightly lower rates. CDs for money you can lock up - higher rates but early withdrawal penalties. Many people use both: MMA for emergency fund, CDs for intermediate-term savings.