What Is a Money Market Account?
A Money Market Account (MMA) is a type of high-yield savings account offered by banks and credit unions. It combines features of both traditional savings and checking accounts, typically offering a higher interest rate than a standard savings account while still providing easy access to your funds, often with check-writing privileges and a debit card. Because they are deposit accounts, MMAs are insured by the FDIC (at banks) or NCUA (at credit unions) up to $250,000, making them a very safe place to keep your money. Our Money Market Calculator helps you project how much your savings can grow in one of these accounts, factoring in both your initial deposit and any regular contributions you plan to make.
Money Market vs. Savings vs. CDs
It's important to understand where money market accounts fit in the landscape of savings products:
- vs. Traditional Savings Account: MMAs usually offer a higher Annual Percentage Yield (APY) than standard savings accounts. They also often require a higher minimum balance to open and to avoid monthly fees. Our Savings Calculator can help you compare potential growth between account types.
- vs. Certificate of Deposit (CD): A CD typically offers an even higher, fixed interest rate, but it requires you to lock your money away for a specific term. Withdrawing early results in a penalty. MMAs provide more liquidity, meaning you can access your money without penalty. Use our CD Calculator to see how a fixed-term investment compares.
- vs. Money Market Fund: This is a key distinction. A Money Market Account is an FDIC-insured deposit account. A Money Market *Fund* is an investment product (a type of mutual fund) that is not FDIC-insured and can, though rarely, lose value.
Understanding APY and Compound Interest
Money market accounts earn interest that is compounded, usually daily or monthly. The Annual Percentage Yield (APY) reflects the total amount of interest you'll earn in a year, including the effect of this compounding. The formula used to calculate the future value is based on the principle of compound interest, where you earn interest on your interest. This calculator assumes monthly compounding for its projections, which is a common standard. The longer you leave your money, the more powerful the effect of compounding becomes, as illustrated by the growth chart in the results.
Is a Money Market Account Right for You?
An MMA is an excellent choice for certain financial goals, such as:
- Emergency Fund: Its safety and liquidity make it an ideal place to park 3-6 months of living expenses.
- Short-Term Savings Goals: If you're saving for a large purchase in the next 1-5 years, like a car or a house down payment, an MMA offers better returns than a traditional savings account without the risk of the stock market.
- A Hub for Large Balances: If you have a large amount of cash you want to keep safe while still earning a competitive return, an MMA is a great option.
For comprehensive comparisons of current money market account rates, financial resource websites like NerdWallet provide up-to-date information to help you find the best account for your needs.