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How Does a Money Market Account Work?

By Synchrony Staff

  • PUBLISHED August 08
  • |

Here are some of the key features and benefits of money market accounts:

  • Money market accounts are a type of deposit account.
    • A money market account is essentially a combination of a savings account and a checking account: deposits are easy and unlimited but withdrawals by electronic, telephone and check transactions are limited.
    • Unlike a traditional savings account, a money market account allows you to write checks.
  • Money market accounts allow you relatively easy access to your money with a few limitations.
    • The Federal Reserve Board specifies that customers are allowed no more than six withdrawals per month from money market accounts. ATM and teller withdrawals don’t count towards this limit.
  • The amount of interest that a money market account offers varies from bank to bank.
  • Your money is safe in a money market account as long as it is FDIC insured. Make sure the bank where you open your account is insured by the FDIC.

Comparing Money Market Accounts

Should you open a money market account? Compare these types of bank accounts to see what best meets your financial needs and habits.

Money Market Accounts vs. Regular Savings Accounts

A money market account allows you to write checks, while a regular savings account doesn’t. Both money market accounts and savings accounts are FDIC insured and have a limit of six transfers or withdrawals per statement cycle.**

Interest rates between these two types of accounts are often similar, but it depends on the bank or credit union. If the money market account offers a higher interest rate, you may have a higher minimum balance requirement.

Money Market Accounts vs. Checking Accounts

One of the biggest differences between money market accounts and checking accounts is the number of allowed transactions. Checking accounts are designed to be frequently accessed and have unlimited withdrawals, while MMAs have transaction limits. Also, checking accounts usually pay low interest rates and have low minimum balance requirements. Both types of accounts are eligible for FDIC insurance.

Money Market Accounts vs. Certificates of Deposit (CDs)

Compared to MMAs, CDs generally have higher interest rates and require higher minimum deposits. Unlike a money market account, you may be penalized for withdrawing from a CD before the term is completed. Terms can range from a few months to several years. Those looking to access their money regularly may find a money market account to be more flexible. MMAs and CDs are both FDIC insured.

Money Market Accounts vs. Money Market Funds (MMFs)

It’s easy to confuse MMAs and MMFs. However, these types of accounts are quite different. While MMAs are offered by banks and credit unions, money market funds are mutual funds offered by investment firms. MMFs are not FDIC insured. Your earnings from a MMF depend on the performance of your account’s mutual fund as opposed to interest rates.

Speak to a financial consultant to learn more about specific accounts and what type works best for your goals.

How a Money Market Account Earns Interest

In general, money market accounts pay a higher interest rate than regular savings accounts. When you open an account, the bank will tell you the annual percentage yield, or APY.

Ask your bank about their specific interest rates and terms. You can also use our online calculator to see how funds within a money market account can grow over periods ranging from six to 36 months.

How Can I Manage My Money Market Account?

Now that you understand how a money market account works, learning how to properly manage your MMA is the next step:

  • How to make deposits: There are many ways you can add money to your MMA. Make deposits from other internal accounts, electronically, online, at an ATM, via a wire transfer or through personal or cashier’s checks.
  • How to make withdrawals: Take out money from your MMA by transferring the funds to an external bank account, using your ATM card, wiring funds or requesting a check to be sent to your address.
  • How to watch your balance: If your account requires a minimum balance, keep tabs on how much money is in your account by viewing your account balance online or at an ATM.
  • How to limit transactions: Keep track of how many times you have withdrawn in a month to make sure you don’t go over the 6 transaction limit (not including ATM withdrawals).

While similar to savings accounts in most ways, money market accounts can offer higher interest rates depending on the institution.  It’s important to research different account options when determining if a money market account is right for you.

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