A money market account (MMA), formally a money market deposit account (MMDA), is an interest-bearing deposit account offered by US banks and savings institutions that usually pays a higher rate than a basic savings account and may come with limited cheque-writing or debit-card access. Credit unions offer the same product as a money market share account. Because it is a bank deposit, it is covered by federal deposit insurance up to the legal limit.
The account is often confused with a money market fund (MMF), which has a similar name but is a mutual fund regulated by the Securities and Exchange Commission and is not deposit-insured. A money market account sits between a checking account, which is built for everyday payments, and a certificate of deposit, which pays a fixed rate in exchange for locking money away. The product is mainly a US one; other countries have similar instant-access or notice savings accounts under different names.
Money market account in plain terms
Think of three places to keep spare cash at home: a wallet, a drawer and a locked safe. The wallet is easy to reach but earns nothing. The safe is secure but awkward to open. A money market account is like the drawer: you can still get to the money fairly quickly, and while it sits there the bank pays you a bit more than it would on an ordinary savings account.
The trade is that the bank may ask for a larger minimum balance and may limit how often you dip in. It suits money you want to keep safe and handy, such as an emergency fund or savings for a large bill next year, rather than money you spend every day.
History
Money market deposit accounts were created by the Garn-St Germain Depository Institutions Act of 1982. In the high-interest-rate years of the late 1970s and early 1980s, interest-rate ceilings on bank deposits drove savers to money market funds, which could pay market rates. The Act told regulators to authorise a deposit account "directly equivalent to and competitive with" those funds, and banks and thrifts began offering MMDAs on 14 December 1982. Early rules required a $2,500 minimum balance and limited the number of third-party transfers each month.
The transfer limit survived for decades through the Federal Reserve's Regulation D, which allowed no more than six "convenient" transfers or withdrawals a month from savings deposits, including MMDAs. On 24 April 2020 the Federal Reserve Board issued an interim final rule deleting that limit, after it had cut reserve requirements to zero. Banks may now allow unlimited transfers, but many still apply their own monthly limits and fees, so terms vary by institution.
How a money market account works
An MMA pays a variable interest rate set by the bank. Rates tend to follow short-term market rates such as those on Treasury bills and the policy rate set by the Federal Reserve, but banks adjust them at their own discretion and often with a lag. Common features include:
- Tiered rates. Higher balances may earn a higher rate, and balances below a minimum may earn little or nothing or incur a monthly fee.
- Limited access. Many accounts include a small number of cheques or a debit card, plus transfers to a linked account, although some online banks offer transfers only.
- Yield disclosure. US banks must state the return as an annual percentage yield (APY), which includes the effect of compounding, so offers can be compared.
Behind the scenes, the bank treats the money as an ordinary deposit and lends or invests it as it chooses; the name refers to the competitive rate, not to the bank buying money market instruments for the depositor.
Safety and deposit insurance
Money market accounts at FDIC-insured banks are covered by deposit insurance up to $250,000 per depositor, per insured bank, for each account ownership category. Money market share accounts at federally insured credit unions receive the same $250,000 coverage from the National Credit Union Share Insurance Fund, administered by the NCUA. Balances above the limit are uninsured, which matters for businesses and wealthy savers.
A money market fund is different: it is an investment, its holdings are short-term securities, and although funds aim to keep a stable value, losses are possible. Some brokerage "cash sweep" programmes move uninvested cash into bank deposits instead, which can be insured; see sweep accounts.
Comparison with other cash accounts
| Account | Typical rate | Access | Insured |
|---|---|---|---|
| Checking account | None or low | Unlimited; cheques, cards, transfers | Yes |
| Savings account | Low to moderate | Transfers; bank limits may apply | Yes |
| Money market account | Moderate; often tiered | Transfers, some cheques or card | Yes |
| Certificate of deposit | Fixed for the term | Penalty for early withdrawal | Yes |
| Money market fund | Tracks short-term market rates | Sell shares, usually next day | No |
The right choice depends on the trade-off between rate, access and safety. Many households keep a budget buffer or emergency fund in an MMA or a high-yield savings account, which can pay similar rates. Like all cash holdings, an MMA is exposed to inflation risk: when its variable rate trails inflation, the balance loses purchasing power even as it earns interest.