Money Market Account Definition

A money market account is an interest-bearing account that typically pays a higher interest rate than a savings account and provides the account holder with limited check-writing ability. A money market account thus offers the account holder benefits typical of both savings and checking accounts. This type of account is likely to require a higher balance than a savings account and is Federal Deposit Insurance Corporation (FDIC) insured.

Money market accounts are typically able to offer higher annual percentage yields than savings accounts because the vehicles invest in a variety of options from which traditional passbook accounts are restricted. Banking institutions provide access to insured money market deposit accounts (MMDA).

MMDAS offer FDIC backing, and the portfolios typically invest in short-term, liquid securities. They are able to offer a higher interest rate by requiring a higher minimum balance and by placing restrictions on the number of withdrawals the account holder may take in a given period. This restriction makes them less liquid than a checking account, but more liquid than bonds. Money markets pursue investing deposits in vehicles such as certificates of deposit, government securities, and commercial paper that offer higher yields than are generally found in savings accounts.

Money market fund minimums to establish an account generally vary among financial institutions. Online banks such as State Farm Bank offer money market options with an initial deposit of $100 (SEE NOTE), whereas banks such as Silvergate Bank require an opening deposit of $1,000. Regional retail banks such as PNC Bank only mandate a $1 deposit to establish an account.

State Farm Bank’s money market account requires a monthly direct deposit or maintaining a $500 daily average balance to avoid a monthly service fee. Silvergate Bank, by contrast, requires a $1,000 balance to sidestep monthly fees of $15 per month. Both institutions offer check writing privileges on these accounts.

Eschewing brick-and-mortar options for an electronic market presence, online banks are able to offer higher rates because of their reduced operational costs. PNC Bank—with walk-in locations extending from the South to Northeast and into the Midwest—offered a money market rate of 0.13% on balances between $50,000 and $99,000 in the Northeast as of Feb. 1, 2019. Online banks such as Ally Bank, headquartered in Midvale, Utah, with no retail branches, offered a money market rate of 0.90% for balances less than $25,000, then a rate of 1.00%. The national average for a bank money market account has an annual percentage yield of 0.08%.