What is a money market account? | Consumer Financial Protection Bureau (2024)

FAQs

What is a money market account? | Consumer Financial Protection Bureau? ›

A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.

A money market account is a deposit account you open at a bank or credit union. Money market funds, on the other hand, are a type of mutual fund you can use to invest in short-term debt. Money market accounts are FDIC-insured, while money market funds are not.

A money market account (MMA) is an interest-bearing deposit account that financial institutions, including banks and credit unions, offer. These accounts typically combine features of savings accounts and checking accounts.

Disadvantages of money market accounts

For example, you often won't earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer.

A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs).

You can withdraw money from your money market account whenever you'd like. However, your bank may place limits on how many withdrawals you can make in a single statement period. Additional withdrawals typically incur a fee.

The biggest risk a money market account poses is that your money may lose value over time to inflation. Depending on inflation and the interest rate you earn with your money market account, inflation may outpace your MMA's earnings.

A money market account is also a deposit account that offers higher interest compared to a traditional savings account, but it also includes some capabilities more commonly found in traditional checking accounts, such as access to your funds via debit card or check.

Fees and APYs

Typically, a brick-and-mortar (or traditional) bank's money market account has higher monthly service fees but offers a better interest rate compared to its savings account.

The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.

Do money market accounts ever lose value? ›

It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.

Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.

For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.

Currently, there are no savings accounts on the market that offer a 7% APY. It's much more common to find a savings rate of 4% to 5% right now.

No financial institutions currently offer 7% interest savings accounts. But some smaller banks and regional credit unions are currently paying more than 6.00% APY on savings accounts and up to 9.00% APY on checking accounts, though these accounts have restrictions and requirements.

You can also visit the FDIC Information and Support Center to submit a request for deposit insurance coverage information or you can also call the FDIC at 1-877-ASK-FDIC (1-877-275-3342) and an FDIC deposit insurance specialist will help you calculate your deposit insurance coverage.

It allows you to invest in short-term debt securities, including US treasury bills. So while it offers the liquidity and low risk of a money market account, a money market fund is an investment product, not a deposit product, and therefore can't receive FDIC coverage.

Money market funds, like mutual funds, are neither FDIC insured nor guaranteed by the U.S. government or government agency and are not deposits or obligations of, or guaranteed by, any bank.

Both high-yield savings and money market accounts enjoy FDIC insurance up to $250,000 per person, per bank, and per account type, making them among the safest choices for where to put your money.