What Is a Money Market Account and How Does it Work?

Money market accounts (MMAs) are a type of deposit account, and generally pay somewhat higher interest rates than a traditional checking or savings account, especially in today’s higher-rate environment.

However, these types of accounts can also come with downsides, like higher minimum balance requirements, limits on withdrawals, and fees.

Money market accounts are different from money market funds, which are a type of mutual fund invested in highly liquid, short-term debt.

What Is a Money Market Account?

A money market account is a type of FDIC-insured deposit account that is offered by most banks and credit unions, and it offers some unique features.

Money market accounts generally pay higher interest rates than a traditional savings or checking account. However, money market accounts typically have a higher minimum deposit requirements ($2,500 is common).

Restrictions and Tax Implications

These accounts also generally have more restrictions than a traditional checking account, often only allowing a certain number of withdrawals each month using checks or a debit card. In addition, the interest earned from a money market account is taxed as ordinary income, unless it’s held in a tax-deferred account like an IRA.

Unlike standard market investments, money market accounts and similar deposit accounts at banks are typically FDIC-insured up to $250,000 per depositor, per insured bank, for each account ownership category Similarly, joint accounts with two co-owners may be insured up to $500,000. Investing the money in these restricted accounts allows MMAs to earn a higher interest rate while still maintaining FDIC-insurance protection.

Pros of a Money Market Account

There are many pros to using a money market account, including the fact that these accounts can be a good place for short-term savings.

Higher Interest Rate

One possibility with a money market account is that you can lock in an interest rate that’s somewhat higher than that of a standard checking or savings account.

According to the FDIC, as of February 2025, the average national interest rate for checking accounts was 0.07%, while for a savings account, it was 0.41%. Money market accounts, on the other hand, had an average interest rate of 0.64%.

Again, like any interest-bearing account, the interest from an MMA is taxed as ordinary income, unless the MMA is held within a tax-deferred account.

Easier Access to Cash

Of course, some other types of deposit accounts, like certificates of deposit (CDs), also offer higher interest rates than a standard checking or savings account. However, a money market account may offer more flexibility than a CD, in that CDs generally offer very limited access to your money.

So if you’re trying to save but still need to keep your assets relatively liquid, a money market account might be a better option.

Most money market accounts offer a limited number of transactions per month, which means you may still be able to access your money in a pinch without facing fees or other consequences.

Safety and Insurance

Additionally, another potential benefit of money market accounts is that they are FDIC insured. FDIC insurance is important because it means that your principal deposit is protected from loss, up to a certain amount.

As discussed above, deposit accounts like money market accounts are protected up to $250,000 for each individual depositor at a bank insured by the FDIC. If your account is at a credit union, it is protected at the same amounts, but by the National Credit Union Administration (NCUA).

This means, if for some reason your bank or credit union is unable to honor the amount of money you’ve deposited as principal into a money market account, the FDIC or NCUA will insure your money.

This provides a level of safety for your deposits that’s not possible with other types of investment accounts, where there’s always the risk that your principal could be partially or wholly lost due to market changes.

Diversification

A money market account may provide some portfolio diversification, owing to the conservative nature of these accounts, which function as cash equivalents within an investment plan.

Recommended: What Are Savings Bonds?

Cons of a Money Market Account

There are also downsides to using a money market account, and a money market account is not right for everyone.

Too Easy to Access

The relatively easy access that a money market account provides could actually end up being a downside.

If you’re hoping to save money for an extended period of time and don’t need access to your cash, having built-in access with checks or a debit card might tempt you to dip into your savings more frequently. You might be less tempted by a more restrictive type of account, like a CD.

High Minimum Balance Requirements

Additionally, money market accounts typically require minimum balances that can put them out of reach for some savers. For example, if someone wants to save $1,000 but a money market account at their bank has a $2,500 minimum balance, a regular savings account may make more sense.

There’s always the option to invest your money as opposed to just saving it, which can allow you to sidestep the high minimum balances a money market account might have. Although investing comes with higher risks, and without the guarantee of a steady rate of interest.

Other Accounts May Pay More

One final disadvantage is that money market accounts, while generally offering higher interest rates than standard checking or savings accounts, still don’t offer particularly high rates on your deposits.

While the interest rates for money market accounts are comparatively higher than those of a checking or savings account, they may not be as high as return rates offered by other types of savings vehicles, like a CD. Potential returns also might not be as high as with a traditional investment account (although, again, the risks are higher with an investment account).

Choosing a Money Market Account

If you’ve decided that a money market account is right for you, you’ll want to choose the best money market account for your specific situation and goals.

Consider the risk involved. While deposit accounts such as money market accounts at banks and credit unions are typically FDIC- or NCUA-insured up to $250,000 per account holder, some money market accounts may be slightly riskier than others.

The risk factor varies since each bank or credit union will have different investment options.

Know how much access you’ll need. It’s also important to consider how accessible your money needs to be. One hallmark of money market accounts is that they typically only allow a limited number of transactions over a certain period of time.

This may not be a problem if you don’t anticipate needing to make frequent withdrawals from your MMA, but if you think you may need to move money around or frequently access your savings, consider an account with flexible withdrawal rules.

Watch out for account fees. Likewise, it’s important to watch out for account fees. Money market accounts may come with bank fees and charges, such as maintenance fees or penalties for falling below the minimum account balance.

Note minimum balance requirements. It’s also important to find a money market account with a minimum account amount that works for you. Remember, even if a saver has enough money to initially meet the bank or credit union’s minimums, withdrawals that put the account below the minimum balance could be met with unexpected fees. When searching for a money market account, savers should make sure account minimums align with their savings goals.

Compare interest rates. Finally, make sure that you check out the interest rates of any money market accounts you’re considering. Make sure they meet your expectations and are worth the restrictions of a money market account as compared to a savings or checking account.

Alternatives to Money Market Accounts

Of course, a money market account isn’t the only place to stash your savings.

•   Other types of bank accounts. For example, if you’re interested in putting your money somewhere that’s easily accessible, you might choose a regular checking account, an interest-bearing savings account, or a money management account. In fact, some savings account interest rates rival money market accounts and may offer easier access to your money.

•   Types of CDs. Meanwhile, CDs may offer better rates than money market and savings accounts. However, they limit your access to money for months or even years, which means they may not be the best option for those who need regular access to their savings.

•   An investment portfolio. Investment portfolios, which are not FDIC-insured, allow you to invest money in a range of securities. Investing may offer higher returns than money market accounts, but there’s also a higher risk of loss.

The Takeaway

Money market accounts can be one tool in a well-equipped financial toolbox, allowing you to save at a potentially higher interest rate while maintaining access to your money. Some people may want to use a money market account alongside their ordinary checking and savings accounts.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

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Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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