A money market checking account combines checking and savings in one account
A money market checking account is a bank account that lets you write checks and use a debit card like a regular checking account, but it also pays you interest on your balance like a savings account does. The tradeoff is that you usually need to keep a higher minimum balance than you would in a standard checking account, and the interest rate changes based on how much money you have in the account.
The account is called "money market" because banks use the money you deposit to invest in short-term, low-risk loans and securities. In return, they share some of that income with you through interest. This is different from a regular checking account, which typically pays no interest at all.
These accounts work best for people who have a steady amount of money sitting in their checking account that they don't plan to spend soon. If you keep your account balance low or withdraw money frequently, you'll earn very little interest and may not meet the minimum balance requirement, which can result in monthly fees.
Key Takeaways
- Money market checking accounts let you write checks and earn interest on your balance at the same time, unlike regular checking accounts that earn nothing.
- Banks require you to keep a minimum balance—often $2,500 or higher—to avoid monthly fees and to earn the advertised interest rate.
- The interest rate you earn depends on how much money you have in the account; higher balances earn higher rates.
- You can withdraw money whenever you need it, but frequent withdrawals may cause you to fall below the minimum balance and lose the interest rate benefit.
How the interest rate works in tiers
Most banks structure money market checking accounts with tiered interest rates. This means the rate you earn depends on your balance. For example, a bank might offer 0.05% interest on balances under $10,000, 0.15% on balances between $10,000 and $25,000, and 0.25% on balances above $25,000.
The higher your balance, the higher the rate you earn on that entire balance. This encourages you to keep more money in the account. However, interest rates change frequently—sometimes weekly—based on what the Federal Reserve does with its own interest rates. When the Fed raises rates, banks typically raise the rates they offer on money market accounts. When the Fed lowers rates, banks lower theirs too.
You should check your bank's website or call to find out the current rates and tier structure before opening an account. Rates vary significantly between banks, and a higher-tier account at one bank might pay more than a lower-tier account at another bank, even if you have the same balance.
Minimum balance requirements and monthly fees
Most money market checking accounts require you to maintain a minimum balance—the smallest amount of money you must keep in the account at all times. If your balance drops below this amount, even for one day, you may be charged a monthly fee, typically between $10 and $25.
The minimum balance requirement varies by bank. Some banks set it at $2,500, while others require $5,000 or more. A few banks offer money market checking accounts with no minimum balance, but these are less common and usually pay lower interest rates.
It's important to understand what "minimum balance" means at your specific bank. Some banks calculate it as the lowest balance your account reaches during the month. Others require you to maintain the minimum every single day. A few banks average your balance over the month. Ask your bank which method they use before you open the account.
When a money market checking account makes sense
A money market checking account is worth considering if you have a steady paycheck, keep a large emergency fund in your checking account, and don't need to withdraw that money often. The interest you earn might be modest—often less than 1% per year—but it's better than earning nothing in a regular checking account.
These accounts also work well if you want the flexibility of a checking account (writing checks, using a debit card) but also want your money to earn something. You don't have to choose between liquidity and interest the way you do with a traditional savings account or certificate of deposit.
However, if you regularly dip below the minimum balance or if you're the type of person who keeps most of your money in checking anyway, a money market checking account probably won't save you money. The monthly fees for falling below the minimum can quickly erase any interest you've earned.
Money market checking versus regular checking and savings accounts
| Feature | Regular Checking | Money Market Checking | Savings Account |
|---|---|---|---|
| Write checks | Yes | Yes | No |
| Debit card access | Yes | Yes | Usually no |
| Earns interest | No | Yes | Yes |
| Minimum balance required | Often none | Usually $2,500+ | Often none |
| Monthly fees | Varies | If below minimum | Varies |
The main advantage of a money market checking account over a regular checking account is the interest. The main advantage over a savings account is that you can write checks and use a debit card without transferring money first.
The disadvantage compared to both is the higher minimum balance requirement. If you can't comfortably keep that much money in the account without dipping below it, the monthly fees will cost you more than any interest you earn.
Questions to ask your bank before opening one
Before you open a money market checking account, contact your bank and ask these specific questions: What is the current interest rate for each tier? How is the minimum balance calculated—daily, monthly average, or lowest balance during the month? What happens if you fall below the minimum for one day? Does the bank charge a monthly fee, and if so, how much? Can you move money between this account and other accounts without penalty?
Also ask whether the interest rate is may provide or whether it can change. Most banks reserve the right to change rates whenever they want, so a rate advertised today might be lower next month. Some banks also offer promotional rates for new customers that expire after a few months, so make sure you understand what rate you'll earn after any promotional period ends.
Frequently Asked Questions
Can I use a money market checking account as my main checking account?
Yes, you can use it for everyday transactions like paying bills and buying groceries. The only real difference is that you need to keep a higher balance to avoid fees. If you're comfortable maintaining that balance, it works just like a regular checking account.
What happens if my balance drops below the minimum?
Most banks charge a monthly fee, usually $10 to $25, if your balance falls below the minimum even once during the month. Some banks also reduce your interest rate to zero until your balance recovers. Check your bank's specific policy before opening the account.
Is the interest I earn taxable?
Yes. Banks send you a 1099-INT form at the end of the year showing how much interest you earned, and you must report that income on your tax return. The amount is usually small, but it still counts as taxable income.
Can I withdraw money whenever I want?
Yes, you can withdraw money anytime without penalty. However, if your withdrawal causes your balance to drop below the minimum, you'll be charged a monthly fee. Some banks also limit how many withdrawals you can make per month before charging a fee, so check your bank's rules.
How much interest will I actually earn?
It depends on your balance, your bank, and current interest rates. If you keep $10,000 in an account earning 0.15% annually, you'd earn about $15 per year before taxes. Higher balances and higher rates earn more, but money market checking accounts typically pay less than high-yield savings accounts.