What Is a Money Market Account? How It Works and Key Downsides

If you’ve ever looked at your savings account and wondered why the interest feels stuck in the past, a money market account might be the answer. It offers something most savings accounts don’t: check-writing privileges and often a higher yield — as of May 2025, the national average rate on money market accounts sits at just 0.64% APY, but top institutions are paying over 5%.

National average MMA rate: 0.64% APY (FDIC) ·
Best available MMA rate: up to 5.50% APY ·
FDIC insurance limit: $250,000 per depositor ·
Typical minimum deposit: $1,000 to $100,000

How does a money market account work?

A money market account is a deposit account offered by banks and credit unions that combines features of both savings and checking accounts (Citizens Bank). You earn interest on your balance, similar to a savings account, but you also get limited check-writing abilities and often a debit card.

Key features of a money market account

• Interest rates are tiered based on your balance — the more you deposit, the higher the rate you earn (Sallie Mae).
• Withdrawals are limited to six per month per Regulation D, though this rule is currently suspended — some banks still enforce it (Compare.com).
• FDIC insurance covers deposits up to $250,000 per depositor, per bank (FDIC).

How interest is calculated on an MMA

Most banks calculate interest daily and credit it monthly. Your annual percentage yield (APY) reflects the total interest you’d earn over a year, including compounding. For example, a $10,000 deposit at 5.00% APY compounds to about $500 in interest after 12 months, assuming no withdrawals.

The implication: Money market accounts reward larger balances with better rates, but you trade liquidity for those higher tiers. A $5,000 minimum to avoid a $5 monthly fee, as seen with some institutions, means smaller savers get squeezed.

What is the downside to a money market account?

Minimum balance requirements

Many money market accounts require a minimum daily balance to avoid monthly fees. For example, one major bank’s MMA charges a $5 monthly fee if the balance falls below $5,000 (Bankrate). Some accounts require $10,000, $25,000, or even $100,000 for the best rates.

Fees that reduce earnings

Monthly maintenance fees can eat into your interest. At the national average rate of 0.64% APY, a $5 monthly fee on a $10,000 balance wipes out over $60 of interest — more than the account earns in a year (Compare.com).

Variable interest rates

Unlike a CD, an MMA rate can drop at any time. If the Federal Reserve cuts rates, your APY falls with it. Some banks advertise a high introductory rate that reverts to a much lower one after a few months.

What this means: The combination of minimums, fees, and rate variability makes money market accounts best suited for disciplined savers who can maintain a high balance. For casual savers, a high-yield savings account may actually pay more, with fewer strings attached.

How much will $10,000 make in a money market account?

Two earnings examples show the wide gap between average and top-tier rates. The difference is striking.

Earnings example at 5.00% APY

At a top MMA rate of 5.00% APY, $10,000 earns about $500 in interest per year before taxes (Sallie Mae). That’s $41.67 per month — enough to cover a modest streaming subscription or a few takeout meals.

Earnings example at 0.64% APY (national average)

At the national average rate of 0.64% APY, $10,000 earns about $64 per year (Business Insider). That’s just $5.33 per month — roughly the cost of a monthly maintenance fee. A $50,000 balance earns about $320 at the average rate, versus $2,500 at a top rate.

Why this matters: The difference between a top rate and an average rate means thousands of dollars in lost interest for anyone keeping a substantial emergency fund in their checking account. For a $50,000 balance, the gap between 0.64% and 5.00% APY is $2,180 per year.

What is better than a money market account?

High-yield savings account vs MMA

High-yield savings accounts often have lower minimums, no monthly fees, and comparable or higher rates. Bankrate reported top savings rates around 4.15% APY as of July 2026 (Bankrate). The trade-off: no check-writing or debit card access.

Certificate of deposit vs MMA

CDs lock in a fixed rate for a set term, protecting you from rate drops. But your money is tied up — early withdrawals incur a penalty. A 12-month CD at 4.50% APY earns $450 on $10,000, comparable to a top MMA, but with no liquidity (Citizens Bank).

Money market fund vs MMA

Money market funds are investment products, not deposit accounts. They are not FDIC-insured and can lose value — as happened during the 2008 crisis when the Reserve Primary Fund “broke the buck” (Business Insider). They often offer slightly higher yields but carry principal risk.

The pattern: Each product optimizes for one thing — liquidity (savings), rate certainty (CD), or access (MMA). The best choice depends on whether you prioritize yield, safety, or flexibility.

Has anyone ever lost money in a money market account?

FDIC insurance on bank MMAs

FDIC-insured money market accounts have never lost principal when held within insurance limits and at one institution. Coverage is $250,000 per depositor, per bank (FDIC). If your bank fails, the FDIC makes you whole — up to that limit.

Risk of money market funds

Money market funds are a different story. In September 2008, the Reserve Primary Fund “broke the buck” — its net asset value fell below $1 per share — causing investors to lose a portion of their principal (Business Insider). The same risk exists for any money market fund not insured by the FDIC.

The implication: As long as you keep your money in a bank or credit union MMA and stay under the $250,000 FDIC limit, your principal is protected. The risk is not loss of capital, but loss of earnings if rates drop or fees eat your interest.

Frequently asked questions

For the saver with $10,000 ready to earn interest but keep access, the choice is clear: a top-tier money market account beats the national average by a factor of eight. Shop the best rates, read the fee schedules, and pick the bank that gives you the highest APY on the balance you actually keep — not the one you wish you had.