February 16, 2024

A Guide to Money Market Accounts

At first glance, a money market account may seem like any other savings account. However, it comes with certain unique features that set it apart. It’s ideal for individuals looking to earn higher interest without sacrificing access to their funds, and money market accounts are an attractive option for both conservative investors and savvy savers alike. This article will guide you to understanding how money market accounts work and help you decide if it’s the right choice for your financial goals.

What is a Money Market Account?

A money market account is a popular financial product provided by banks and credit unions, offering individuals the opportunity to earn higher interest rates on their savings compared to traditional savings accounts. These accounts are also backed by federal insurance from either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), providing added security for depositors.

Think of it as a hybrid between savings and checking accounts: it often includes check-writing abilities while earning you more in interest repayments.

Benefits of Money Market Accounts

Some of the key benefits of a money market account include:

  • Tiered Dividends: Unlike regular savings accounts or high yield savings accounts, money market accounts pay tiered dividends. As your balance grows, so will your earnings. The more you deposit into your account, the higher the dividend rates you’ll receive.
  • Competitive Dividend Rates: With a money market account, you can earn competitive dividends on your average daily balance of $1,000 or more. Even with a relatively small balance, you have the potential to earn a decent return on your savings.
  • Convenient Digital Banking: Many financial institutions now offer convenient digital banking services for their money market accounts which means you can easily access and manage your account online, making it more convenient to save and track your earnings.
  • Lower Minimum Balances and Fees: Compared to traditional banks, many money market accounts at credit unions often have lower minimum balance requirements and lower or even no monthly fees.

How Money Market Accounts Work

Let’s get into the nitty-gritty of how these accounts function on a day-to-day basis.

Minimum Balance Requirements

Most money market accounts require a higher minimum balance to open and maintain the account compared to standard savings accounts. If your monthly balance falls below this minimum, you might incur fees or receive lower interest rates.

Interest Calculation and Compounding

Interest on money market accounts is usually compounded daily and paid out monthly. It’s critical to understand the annual percentage yield (APY) of an account, as this tells you how much you will earn in interest over a year, taking into account the compounding effect.

Withdrawal Limitations and Penalties

While the limits on money market accounts were lifted in 2020, depending on the bank or credit union, certain types of withdrawals are still limited from money market accounts. Exceeding these limitations could result in fees, reduced interest rates, or the conversion of your account into a checking account.

Other banks have larger minimum balances and monthly fees. At Interior Federal, there aren’t any minimum balance requirements or monthly account fees. 

Comparing Money Market Accounts to Other Savings Options

Money market accounts are a popular savings option. They offer a unique blend of high interest rates, liquidity, and low risk that make them attractive to investors.

Traditional Savings Accounts

A traditional savings account is the most basic form of savings money in a bank. They offer low interest rates compared to money market accounts, but they also have lower requirements for opening and maintaining an account. Most traditional savings accounts do not have minimum balance requirements and offer easy access to funds through ATM withdrawals or online transfers. However, these accounts may also come with monthly maintenance fees if certain conditions are not met, such as maintaining a minimum balance or making a certain number of transactions each month.


Certificates are another popular savings option. They offer higher interest rates than traditional savings accounts, but they also come with a catch – your money is locked away for a predetermined period of time. You can’t withdraw your funds without incurring penalties until the certificate reaches maturity. Certificates are ideal for individuals who have extra cash and do not need immediate access to it, as they often offer higher interest rates than both traditional savings accounts and money market accounts.

An Interior Federal Certificate will earn you a higher return on your savings, and will allow you to set money aside for a specific period of time.  Investing money can be risky, take away that risk and earn guaranteed savings with a Certificate.

Money Market Mutual Funds

A money market mutual fund is an investment product that functions similarly to money market accounts but is not insured by the FDIC or NCUA. While money market mutual funds may offer higher interest rates than traditional savings accounts and certificates, they also come with a higher level of risk.

Unlike money market accounts, a money market mutual fund doesn’t have a fixed interest rate and their returns are dependent on market fluctuations which means that while there is potential for higher earnings, there is also a risk of losing money.

Deposit your Tax Return Money or Annual Bonus into a Money Market Account

Are you getting a tax refund or an annual bonus? Keep it growing by depositing it into a money market account. An advantage of depositing your tax return money or bonus in a money market account is the accessibility of your funds without any penalties. Unlike other savings and investment options that may have restrictions on withdrawals, money market accounts often come with check writing and debit card capabilities. You can easily access your funds whenever you need them, making it a convenient option for emergency expenses or unexpected financial needs.

Is a Money Market Account Right for You?

Money market accounts are ideal for individuals looking to earn higher interest without sacrificing access to your funds. They provide security, accessibility, flexibility, and high interest rates – all in one convenient account.

They are also suitable for conservative investors who prioritize the safety of their money.

It’s always essential to assess your financial goals and risk tolerance before deciding on any investment option. Consider consulting with an advisor to determine if a money market account is the best choice for you.

We hope this guide has illuminated the workings of money market accounts, helping demystify their benefits and requirements. Money market accounts can be a strategic tool in your savings arsenal, especially if you’re looking to earn higher interest without locking away your funds. Remember, the best account is the one that aligns with your saving habits and goals.

Related Content: Grow Your Savings with a Money Market Account

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