Many banks offer money market accounts (MMAs). You may be wondering how this type of account fits into your money management plans. Use the guide below to find out what a money market account is, how it’s different from a traditional checking account, and how you can select the best account to achieve your financial goals.

What is a money market account?

A money market account is a type of deposit and savings account. Money market accounts typically offer tiered variable interest rates based on how much money you initially deposit. Depending on the financial institution, there may be a minimum balance requirement you must uphold to avoid an account management fee.

Think of money market accounts as another option for saving money versus traditional savings accounts, certificates of deposit (CDs), individual retirement accounts (IRA), or other savings tools. Money market accounts are ideal if you want to build up your savings and still have access to those funds if necessary. *Note that money market accounts are a separate financial product from money market funds.

Money market accounts vs. checking accounts.

Money market accounts resemble a combination of checking and savings accounts, offering the funds accessibility of a checking account and the returns of a high-yield savings account. However, money market accounts often have higher interest rates than checking accounts.

While a checking account permits unrestricted access to funds, money market accounts restrict the number of no-fee monthly withdrawals. Checking accounts often act as one of the main accounts from which you’ll withdraw money, but money market accounts enable you to allocate funds into one or more separate accounts for various purposes.

How does a money market account work?

People use money market accounts for many purposes, similar to traditional savings accounts. Some people may use it as an emergency fund, while others may use it as a way to save up for a large purchase (like a car), a vacation fund, or another financial goal. In addition, any funds you deposit into a money market account are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000 per account.

Depending on the account terms, some money market accounts require that you meet a minimum initial deposit threshold and maintain a separate minimum balance in the account thereafter. Banks may also offer complimentary checks and check-writing privileges, an ATM card to access your funds, or a debit card. However, account holders are limited to the number of checks they can write and withdrawals they can make every month; the typical limit is six withdrawals.

Money market accounts benefit from tiered variable interest rates that typically accrue daily. With variable interest, your earnings depend on how much you deposit, current market conditions, and how often the interest compounds for your chosen account. Even if you don’t earn the same amount every month, you still earn interest.

Potential fees include maintenance fees if you don’t maintain the minimum balance¹ and excessive transaction penalties if you exceed the withdrawal limits. Some banks allow you to link your money market account to your checking account for overdraft protection. Be aware that from a tax perspective, any interest you earn is considered taxable income in that year.

Money market accounts: Pros and cons.

Money market accounts offer several advantages and disadvantages. As you compare terms between banks, consider what features are most important to you. Keep the primary goal of your new account at the forefront of your mind.

Pros

• Higher interest rates than traditional checking 
• Increased flexibility and accessibility 
• Security and stability
• Potential ATM/debit card and check-writing abilities 
• Deposits are insured by FDIC
• Convenient saving vehicle

Cons

• Minimum balance requirements may apply 
• Limited number of withdrawals and checks per month per federal regulations  
• Potential penalty fees if your balance drops below the set minimum 
• Interest rates fluctuate
• Not necessarily a long-term savings tool

How to select the best money market account.

Before you choose a money market account that best suits your goals, make sure it is the right financial product for you. Money market accounts work best for shoring up funds, working toward a defined savings goal, or earning money for the cash that would otherwise sit idle in your checking account.

Once you’ve determined you’re ready to open a money market account, be sure to read the fine print and ask questions about any accounts you’re considering. Find minimum balance requirements that fit your financial circumstances and ensure you’re aware of any penalties or fees that may apply. As you compare interest rates, look for mobile banking access for convenient access to your savings.

Open your new money market account today.

Explore the features of Popular Bank’s money market accounts to find one that suits your financial goals. Speak to one of Popular Bank’s friendly and knowledgeable representatives about opening a money market account. We’re happy to answer any questions you may have.  Popular Bank offers options to help you grow your savings, find a branch near you, and get personal assistance with your savings goals.