A money market account holds your cash and pays you interest, but it comes with limits on how often you can move money out

A money market account is a savings account that sits between a regular savings account and a money market fund. You deposit cash, the bank or credit union invests it in short-term, low-risk securities (Treasury bills, commercial paper, certificates of deposit), and pays you interest on your balance. The catch: federal rules limit you to six withdrawals or transfers per month, and some institutions set their own lower limits. If you exceed the limit, the account may be closed or converted to a checking account.

The interest rate is variable, meaning it changes based on what the Federal Reserve does with its benchmark rate. When the Fed raises rates, your money market account rate typically rises within weeks. When the Fed cuts rates, yours falls. Banks set their own rates within this environment, so the rate you get depends on which institution you choose and how much you have on deposit.

You can withdraw money in person at a branch, by phone, by mail, or through an ATM if your institution offers one. You can also transfer money out to another account at the same institution or to an external account at a different bank. Each of these counts toward your monthly limit.

Key Takeaways

  • Money market accounts pay interest on your balance, but the rate changes when the Federal Reserve adjusts its benchmark rate.
  • Federal rules cap withdrawals and transfers at six per month; exceeding this limit can result in account closure or conversion to checking.
  • The money the bank holds is invested in short-term securities like Treasury bills and commercial paper, which is why the rate is higher than a regular savings account.
  • Interest accrues daily but is usually credited monthly, and some accounts require a minimum balance to earn the stated rate.

How the interest rate is set and when it changes

The Federal Reserve sets a target range for the federal funds rate—the rate at which banks lend to each other overnight. Money market account rates follow this rate upward and downward, though not always at the same speed. When the Fed raises its target range by 0.25 percent, your account rate may rise by 0.25 percent within one to three weeks, or it may rise by less. Banks have no obligation to pass the full increase to savers.

The rate you see advertised is the Annual Percentage Yield, or APY. This is the total return you earn in a year if you leave the money untouched and rates stay constant. If a bank advertises 4.50% APY and you have $10,000 on deposit, you will earn roughly $450 in interest over twelve months (the exact amount depends on how many days are in each month and how the bank calculates daily interest). The rate is may provide only for the day you open the account; it can change the next day.

Some institutions offer tiered rates: a lower rate on balances under $25,000, a higher rate on balances from $25,000 to $100,000, and an even higher rate on balances above $100,000. If your balance drops below a tier threshold, your rate drops when ready. Read the account disclosure to see whether your institution uses tiered rates.

The six-withdrawal rule and what counts toward it

Federal Regulation D limits you to six withdrawals or transfers per month from a money market account. This rule applies to transfers out of the account—to another account at the same bank, to an account at a different bank, or to a third party. Withdrawals in person at a branch or by ATM count. Transfers initiated online or by phone count. Deposits do not count.

If you exceed six in a calendar month, the bank may charge a fee (usually $25 to $35 per excess transaction), close the account, or convert it to a checking account without your permission. Some banks are stricter and enforce a lower limit—three or four per month—so check your account agreement. A few online banks have removed the limit entirely, but most traditional banks and credit unions still enforce it.

The limit resets on the first day of each calendar month. If you make six transfers in January, your counter goes back to zero on February 1, and you have six more for February. This is why some people use money market accounts for emergency savings: you can access the money, but the limit discourages frequent withdrawals.

How interest accrues and when you see it in your account

Interest accrues daily. The bank calculates your balance at the end of each day, applies the daily interest rate (the annual rate divided by 365), and adds that amount to an interest pool. At the end of the month, the bank credits the total accrued interest to your account. You can then withdraw it or leave it to earn interest the following month.

Some accounts require a minimum balance to earn the advertised rate. If your balance drops below the minimum on any day of the month, you may earn a lower rate for that entire month, or no interest at all. Common minimums are $2,500, $10,000, or $25,000. If you are close to the minimum, a large withdrawal could cost you interest for the whole month.

Interest is taxable income. At the end of the year, the bank sends you a Form 1099-INT showing how much interest you earned. You report this on your tax return. If you earned $10 or more in interest, the bank must send the form; if you earned less, the bank may still send it, but you are responsible for reporting the income either way.

Money market accounts versus money market funds

A money market account is a bank or credit union product insured by the FDIC (up to $250,000 per depositor per institution) or the NCUA (for credit unions). Your principal is protected even if the institution fails. A money market fund is a mutual fund that invests in the same short-term securities but is not insured. If the fund's investments lose value, your principal can decline. Money market funds are sold through brokerages and investment firms, not banks.

Money market accounts have withdrawal limits; money market funds do not. Money market accounts earn interest rates set by the bank; money market funds earn whatever their underlying investments return, minus fees. Money market accounts are for people who want safety and insurance; money market funds are for investors who want flexibility and are comfortable with minimal risk but no may provide.

Minimum balances, fees, and account features

Most money market accounts require an opening deposit, usually $1,000 to $2,500. Some online banks have no minimum. After opening, you may be required to maintain a minimum balance to keep the account open or to earn the advertised rate. If your balance falls below the minimum, the bank may charge a monthly fee ($5 to $15) or drop your rate to a lower tier.

Common fees include monthly maintenance fees (waived if you meet the minimum balance), excess withdrawal fees (charged when you exceed the six-per-month limit), and ATM fees if you use an out-of-network ATM. Some banks offer free ATM access through a network; others charge $2 to $3 per out-of-network withdrawal. Check the fee schedule before opening an account.

Most money market accounts come with a debit card or checkbook, allowing you to access your money without counting it as a transfer. Some banks limit the number of checks you can write per month (usually 3 to 6), while others allow unlimited checks. If you plan to write checks or use a debit card frequently, confirm the account allows this without triggering the withdrawal limit.

How to move money in and out without hitting the withdrawal limit

If you need to access your money regularly, use the debit card or checkbook that comes with the account. Checks and debit card purchases typically do not count toward the six-withdrawal limit, though some banks do count them. Call your bank and ask: "Do debit card purchases and checks count toward my six monthly transfers?" The answer determines whether you can use the account as your primary spending account.

If you need to move money to another account frequently, consider keeping a separate checking account for daily spending and using the money market account only for savings. Transfer money from the money market account to checking once per month (or less), and spend from checking. This way you use only one transfer per month and stay well within the limit.

If you regularly exceed six withdrawals per month, a money market account is not the right product for you. A regular savings account has no withdrawal limit, though it typically pays a lower interest rate. A checking account has no limit and no rate restriction, but pays little to no interest. Choose the account type that matches how often you actually need to move money.

Frequently Asked Questions

What happens if I go over six withdrawals in a month?

The bank may charge a fee per excess transaction (usually $25 to $35), close the account, or convert it to a checking account. Some banks enforce a stricter limit than six. Check your account agreement to see your bank's specific policy.

Does a debit card purchase count as a withdrawal?

It depends on the bank. Some banks do not count debit card purchases or checks toward the limit; others do. Call your bank and ask before relying on the debit card to avoid the limit.

Can I lose money in a money market account?

No. A bank money market account is FDIC-insured up to $250,000, so your principal is protected. Your interest rate can fall, but your deposit cannot decline in value.

Why is the interest rate on my money market account lower than the advertised rate?

You may not be meeting the minimum balance requirement, or your balance may have fallen below a tiered rate threshold. Check your account statement or call the bank to confirm which rate tier applies to your current balance.

Is interest from a money market account taxable?

Yes. Interest is taxable income reported on your tax return. The bank sends you a Form 1099-INT at the end of the year showing the total interest earned.