My first bank account was at a credit union, where checking and savings accounts had funny names like “share” and “share draft.”
It was at that credit union that I learned of a third kind of account – the money market account.
I remember seeing it listed on the board, which was one of those cloth boards that had the white plastic letters, and I had no idea what a “money market” was. In my mind, I pictured a dusty marketplace where there were fancy vendors were buying and selling money. In reality, I wasn't that far off though the markets aren't nearly as interesting.
In short, money market accounts are less flexible than checking accounts but more flexible than savings accounts, which is why they offer an interest rate that is higher than a checking account but often lower than a savings account. We delve into this more at the end of the article if you really want to know the differences.
What should you look for in a money market account? Pretty much the same as a savings account. You want a high-interest rate with low or no minimum balance, no monthly maintenance or service fee, and a reasonable excessive transaction fee (if you exceed 6 transactions a month, per Regulation D).
We will outline a few of the best money market accounts available today, with updated rates as they change.
CIT Bank – 1.85% APY
CIT Bank has one of the highest money market rates available and requires just $100 to open. What gets them to the top spot isn't just their rate – they pay this rate on all balances. As you'll see in the rates below, many require you to have a sizable balance before you get the top rate.
With a minimum opening balance of $100, CIT Bank offers a money market rate that is accessible to even the most modest of savers. With no monthly fees, CIT Bank easily snags our top spot for the best money market accounts.
(also, you can pair it with their Savings Builder account that now pays up to a $200 cash bonus)
Discover Bank – 1.60% APY
You probably know Discover mostly for their credit cards but Discover Bank has some of the most competitive rates for banking products too. They currently offer a tiered rate where you can get 1.55% APY on balances under $100,000 and 1.60% APY on balances over $100,000.
There is no minimum balance, no monthly maintenance fee and there are very few additional fees.
BBVA Bank – 1.25% APY
BBVA Bank is an Alabama-based bank that's the subsidiary of the Spanish multinational Banco Bilbao Vizcaya Argentaria. It primarily operates in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas but you can open an account online so you do not need to be a resident of those states to apply.
They offer a money market account with a $25 minimum and a competitive 1.25% APY if your balance is over $10,000. You can fund the account from a credit or debit card too.
Ally Bank – 0.75% APY
I'm a big fan of Ally Bank, it's the hub of my financial map, and where I keep my savings.
With a brick and mortar bank, you expect the money market account to have a higher interest rate than a savings account. With many online accounts, this isn't always the case.
With Ally Bank, their money market account offers a lower interest rate than their savings account. As of December 2019, the MMA offers 0.75% APY – 0.75% APY while the online savings account is higher at 1.60% APY. Both accounts are similar in having no maintenance fees and remote deposit, the only difference is that you can get unlimited deposits and ATM withdrawals on the account.
(read our full review of Ally Bank)
TIAA Bank – 1.75% APY
TIAA Bank is the banking arm of TIAA, formerly known as TIAA-CREF (Teachers Insurance and Annuity Association-College Retirement Equities Fund). The financial services company has a rich and storied history, having been founded in 1918 by Andrew Carnegie, and today is one of the better-known banks in the United States. They recently acquired another bank, EverBank, which I used to work with quite a bit because of their market safe foreign currency CDs.
TIAA Bank has an introductory 1.75% APY on their money market account for balances up to $250,000 for the first year. Then the rate falls to the prevailing rate which, at the moment starts at 1.01% and goes up to 1.60%, depending on your balance.
There is a $5,000 minimum to open but there is no monthly account fee.
Money Market Account vs. Savings Account
A money market account is a hybrid account that's very similar to a savings account but also offers limited check-writing ability. If you think about the differences between checking and savings account, you're often trading a higher interest rate for access.
Checking accounts have a lower interest rate but you can write checks, withdraw money, and transact on the account as often as you need.
Savings accounts have a higher interest rate but you're limited by Regulation D to six transactions a month. Online savings accounts are savings accounts at online banks but they often have MUCH higher interest rates (and other great perks).
On a checking account, the bank has to hold a higher percentage of your balance in their coffers. They are able to lend out more of your savings account balance because it's less flexible. The tradeoff is that they pay you more because they can lend more of it out.
The “money market” is part of the overall financial market that deals with short-term borrowing and lending. Your money market account earns the interest rates within the money markets, which is often higher than savings accounts, but it's going to be less than 12-month CDs (which are a component of the money market).
Before high-interest savings accounts, money market accounts were the only way to get a decent interest rate. Major banks pay nothing for savings accounts. As of December 2019, Bank of America currently pays 0.03% APY on a Rewards Savings Account.
Today, online banks have pushed rates higher. As you've seen with this list, online money market accounts offer a decent interest rate on FDIC insured funds.