Best Money Market Rates of 2021

What Is a Money Market Account?

A money market account is a deposit account that pays interest and typically includes options for making payments. The amount you earn in a money market account might be similar to rates on savings accounts. But money market accounts often have an extra feature that savings accounts lack: The ability to make payments.

For example, a money market account might allow you to spend from your account balance with a debit card, online bill pay, electronic transfers, or paper checks. As a result, you can make payments or withdraw money directly from your account without needing to transfer funds to a checking account. In addition to saving you this step, money market accounts also earn interest on the money up until it’s directly withdrawn.

Not all banks and credit unions offer money market accounts, but many do. It’s critical to review the rates, features, and fees to determine if a particular institution’s money market account makes sense. The payment methods differ from bank to bank, and some accounts limit you to no more than three payments and/or six withdrawals per month—so you need to select an account that fits your needs.

Money market accounts at banks and credit unions are generally insured. If your account is covered by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF), your assets are protected up to federal limits. Insurance is typically $250,000 per depositor, per institution at both banks and credit unions. While money market accounts may be covered, it’s important to understand the difference between money markets and money market funds—these are securities, and they do not have the same level of protection.

Should You Open a Money Market Account?

There are two good reasons for exploring money market accounts. They may allow you to:

1. Maximize your earnings
2. Make payments 

Maximize Earnings

Money market account interest rates might be high—potentially higher than some savings accounts, and most likely higher than interest-bearing checking accounts. When the former is the case, it makes sense to use a money market account as a substitute for savings. Deposit idle cash into that account, and let it grow safely.

Make Payments

A money market account allows you to earn a competitive APY while making funds accessible for payments. That might be helpful when you have one or two large payments each month, and you want to maximize your interest earnings. 

For example, if you have a substantial mortgage payment, it could make sense to pay that expense from a money market account. You’ll keep earning interest until the bank processes your payment, unlike if you just used a checking account. And it’s easier than moving your money from a high-yield savings account to a checking account a few days before you pay your mortgage. The extra earnings might not be significant, but when every penny counts, this strategy could make sense.

Money Market Accounts vs. Savings Accounts

Withdrawal Limits

Savings accounts tend to have fairly straightforward withdrawal rules. Most banks allow up to six outgoing transfers from a savings account each month, though it may vary by bank or credit union. When you withdraw cash from an ATM or teller, that typically doesn’t count toward the limit, nor does writing a check made payable to you.

Money market accounts may have unique limits. Like savings accounts, they typically max out at six withdrawals per month. But some banks set more restrictive rules on how many payments you can make from your money market account each month. For example, you might only be allowed to withdraw money with your debit card at a merchant or write checks three times per month.

Check Writing

Savings accounts don’t offer check writing. However, money market accounts usually allow you to write several checks per month. By comparison, to spend money from your savings account, you usually need to withdraw cash or transfer funds to a checking account.

Debit and ATM Cards

Some money market accounts provide a debit card, which you can use for in-person or online purchases. Some savings accounts provide ATM cards for cash withdrawals, but those cards don’t work for purchases. If you have a checking and savings account at the same bank, your debit card should allow you to withdraw cash from either your checking or savings account. 

Is the Interest You Earn on a Money Market Account Taxable?

Interest earnings from a money market account are typically included in your taxable income. That applies to taxable accounts, such as individual, joint, and many trust accounts. However, if your money market account is registered as a retirement account, such as an individual retirement account (IRA), the annual income should not be taxable in the year received. You might have to pay taxes and penalties when you withdraw money, so check with your accountant or tax professional before you open an account or take distributions.

How to Choose the Best Money Market Account for You

Decide which features are most important, and select a bank that provides what you need.

• Payment options: The tools available for payments might determine which bank you use. Investigate if you can spend your money with a debit card, checks, online bill pay, or other methods.
• Fees: It’s critical to minimize fees in your money market account. Especially if you have a small balance, monthly maintenance fees can eat away at your account or wipe out your earnings.
• Minimum deposits: Some banks require you to deposit a large amount before opening a money market account. Similarly, you might need to keep your balance above certain levels to avoid monthly fees—or to earn the highest rates available.
• APY: When interest earnings are the most important feature for you, look at banks and credit unions that pay the highest money market account interest rates. Take note of temporary promotions, maximum limits, and other restrictions that could limit your earnings.
• Other features: When several banks appear to meet your needs, review account management tools and other features. Look for things like direct deposit, text and email alerts, ATM networks, mobile apps, and anything else that can make your life easier.

Compare several banks using the factors above, and consider how exactly you’ll use your account. After that analysis, a clear winner should emerge.

How We Chose the Best Money Market Rates

We started with a universe of more than 100 banks and credit unions that offer money market accounts. From there, we highlighted offerings with the features that are most important. While high APYs are nice, that might not be your top priority in a money market account. Things like customer service, flexible payment options, other bank resources, and fees can affect how satisfied you are with your next bank account.