A money market account is a savings deposit at a bank or credit union that pays a variable rate — usually tiered by balance — and usually comes with cheques or a debit card attached. Federal regulation classes it as a savings deposit, not a checking account, which is why the bank keeps the right to ask for seven days' notice before a withdrawal, and why, until 2020, you were capped at six convenient transfers a month. The money is insured in exactly the way a plain savings account is, interest is calculated on the balance every day and paid in at a frequency the bank chooses and must disclose, and the rate can change without notice. That is the whole product.
The rest of this page is the mechanism behind each clause of that paragraph, because that is where the surprises live: the transfer limit that was abolished but is still in your agreement, the tier that pays less than the headline, the fee that outruns the interest. It is not a money market fund; money market vs high-yield savings draws that line, and this page leaves it to one paragraph near the end.
What a money market account is, in law
The definition that matters is in the Federal Reserve's Regulation D, which classifies deposits at banks and credit unions alike for the Fed's own purposes. Paragraph 204.2(d)(1) defines a savings deposit as an account on which the depositor is not required by the contract to give notice of a withdrawal, but on which the institution "may at any time" require written notice "not less than seven days before withdrawal is made". Paragraph (d)(2) then says a savings deposit includes an account "commonly known as a passbook savings account, a statement savings account, or as a money market deposit account (MMDA)".
So the legal name is money market deposit account, the legal category is savings deposit, and the legal shape is a deposit the bank can, in theory, make you wait a week for. Banks rarely invoke that clause; it exists to keep the account out of the transaction-account category, which used to determine which deposits carried reserve requirements. In March 2020 the Fed cut those requirements to zero, which leads directly to the next section.
Two things follow directly from the classification. The account is a deposit, so at a bank it is insured by the FDIC — the FDIC lists "money market deposit accounts (MMDAs)" by name among the products it covers, to $250,000 per depositor, per insured bank, per ownership category. At a credit union the equivalent account is insured by the National Credit Union Administration, a different agency with its own fund and its own rules; are money market accounts FDIC insured takes the insurance apart properly, including the brokerage sweep arrangements that blur it.
The six-transfer rule, and what actually replaced it
For decades the savings-deposit definition carried a numerical limit: no more than six "convenient" transfers or withdrawals a month. Convenient meant pre-authorised or automatic transfers (overdraft-protection sweeps, bill payments drawn on the account), transfers you ordered by telephone or online, and payments to third parties by cheque, debit card or similar order. Withdrawals in person, by mail, by messenger or at an ATM never counted. A seventh online transfer in a month was a breach of the account's terms, and banks charged for it.
On 24 April 2020 the Federal Reserve Board issued an interim final rule deleting that limit from the definition, effective the same day. Its stated reasons were the March 2020 cut in reserve requirement ratios to zero, which made the distinction unnecessary for reserve purposes, and households' need to reach their savings during the pandemic. The current text of 204.2(d)(2) — read for this page on 10 September 2026 — describes a savings deposit as one from which the depositor may make transfers and withdrawals "regardless of the number of such transfers and withdrawals or the manner in which such transfers and withdrawals are made". The seven-day-notice reservation was left untouched, and the Board's own questions-and-answers page says it has no plans to re-impose the limits, though it may adjust the savings-deposit definition in future.
Here is the catch, and it is the most misunderstood fact about these accounts. The Federal Register notice says the rule "permits, but does not require" institutions to suspend enforcement. A bank may keep a six-a-month cap in its deposit agreement, charge an excess-withdrawal fee, and still report the account as a savings deposit — and some did. Your limit is whatever your agreement says; the federal rule no longer tells you. Truth in Savings requires any limitation on withdrawals to be disclosed before you open the account, so the number is on the disclosure — just not on the marketing page.
On illustrative terms — a $10 fee per transfer beyond six — three extra transfers a month is $360 a year, which on a modest balance is more than the interest. Read the transaction-limitations line before the rate.
Cheques and debit cards: the feature that names the product
The thing a money market account offers that a savings account usually does not is direct access: a book of cheques, sometimes a debit card, sometimes both. That is the residue of the account's origins: the Garn-St Germain Act of 1982 created the money market deposit account as a new, rate-deregulated deposit for households, at a time when money market mutual funds were drawing savings out of banks, and the name and the cheque access have stayed with it since.
Three practical points about the access, because it is less than it sounds.
It is a savings deposit with cheques, not a checking account. Treat the cheques as a tool for the occasional large payment — a contractor, a tax bill, a car — not for groceries. Where a bank keeps a monthly transfer cap, cheques and card payments usually count against it; cash withdrawals at a branch or an ATM usually do not.
Some banks issue no cheques at all. The words "money market" are not a promise of cheque access; some online banks' money market accounts differ from their savings accounts only in the tier structure. Confirm the feature exists before opening — without it, money market account vs savings account shows the two products are close to identical.
Access is friction removed, and friction has a use. An emergency fund you can spend with a card is an emergency fund that gets spent. Where to keep an emergency fund makes the case for one transfer step between you and the money; a money market account with a debit card removes that step deliberately.
How interest accrues, compounds and gets paid
At a bank this is governed by Truth in Savings, Regulation DD, which by its own terms applies to depository institutions except credit unions; credit unions follow the NCUA's separate Truth in Savings rule, 12 CFR Part 707, and a member should check the equivalent clause there rather than assume it is identical. The mechanics below are the bank rule's, and they hold at every bank whatever the rate.
Interest is calculated on the whole balance, every day. Regulation DD requires a bank to "calculate interest on the full amount of principal in an account for each day", using either the daily balance or the average daily balance method. Methods that pay on less than the full balance, such as the old low-balance method that paid on the month's minimum, are prohibited. Money deposited earns from no later than the business day the bank receives credit for it, and "interest shall accrue until the day funds are withdrawn".
Compounding and crediting are two different frequencies, and the bank picks both. Compounding is how often accrued interest is added to the balance so that it earns interest itself; crediting is how often the interest is actually paid into the account. The regulation dictates neither; it requires both to be disclosed. Daily compounding with monthly crediting is a common pattern.
The rate you compare is the APY, which already contains the compounding. Regulation DD defines the interest rate as the annual rate "which does not reflect compounding" and the annual percentage yield as the rate "based on the interest rate and the frequency of compounding for a 365-day period", calculated by the formula in its Appendix A. APR vs APY explains why the two numbers exist; the short version is that the APY is the only one that can be compared across banks.
On illustrative numbers, labelled as such: $20,000 at an illustrative interest rate of 3.00%, compounded daily, produces an APY of 3.05% and $609.07 of interest over a year, against $600.00 if the same rate were paid without compounding. A 30-day month credits about $49.37. Compounding monthly instead of daily would give an APY of 3.04%: the difference between the two frequencies is about $1 a year on this balance, which is why the compounding frequency is a curiosity and the rate is the decision. Compound interest with real numbers shows what the same mechanism does over decades, where it is not a curiosity at all.
Closing the account can forfeit accrued interest. Regulation DD requires a bank whose terms forfeit accrued but uncredited interest on closure to say so in the opening disclosure; if the disclosure is silent, the interest is paid. Some banks pay it through the closing date; some do not. On the illustrative account above, closing twenty days into a month leaves $32.88 of accrued interest on the table if the terms say so. Ask before you close, and time it.
The statement shows what you actually earned. Each periodic statement must show the "annual percentage yield earned" for the period, the dollar interest, itemised fees and the days in the period. If the APY earned is below the APY advertised, the next section explains why.
Tiers, minimums and fees
A tiered-rate account is, in Regulation DD's words, "an account that has two or more interest rates that are applicable to specified balance levels". Money market accounts are often tiered by balance, savings accounts less so, and the tier structure is where most of the gap between the advertised rate and the earned rate lives. The product description on a bank's page usually leads with the top tier; the account disclosure carries the whole schedule.
There are two ways to apply a tier schedule, and the regulation's Appendix A names them. Under Method A, the rate for your tier applies to your whole balance. Under Method B, each rate applies only to the portion of the balance inside that tier, and the bank must disclose a range of APYs for each tier above the first, because your blended yield depends on exactly where in the tier you sit. The disclosure will say which method applies; the advertisement usually will not.
An illustrative schedule shows the gap. The rates are invented for the arithmetic and are not any institution's:
| Balance (illustrative schedule) | Illustrative interest rate |
|---|---|
| Under $10,000 | 0.50% |
| $10,000 to $49,999.99 | 2.00% |
| $50,000 and above | 3.00% |
On a $60,000 balance, before compounding, Method A pays 3.00% on all of it: $1,800 a year. Method B pays 0.50% on the first $10,000 ($50), 2.00% on the next $40,000 ($800) and 3.00% on the last $10,000 ($300): $1,150, a blended 1.92%. Same schedule, same balance, $650 a year apart. On $12,000 the difference is starker: $240 under Method A, $90 under Method B — a blended 0.75% on an account whose description leads with a 3.00% top tier.
Two more mechanisms sit alongside the tiers.
Minimums. Regulation DD lists three separate minimum balances a bank may set and must disclose: the minimum to open, the minimum to avoid a fee, and the minimum to earn the stated APY. They are often different numbers. An account can be open, fee-free and earning the bottom tier all at once.
Monthly fees. A maintenance fee with a balance waiver is the pattern. On illustrative terms — a $12 monthly fee waived above a threshold you do not meet — the fee is $144 a year. A $5,000 balance at an illustrative 2.00% earns $100, so the account nets minus $44. At that rate the fee is covered only above $7,200, and covered is not the same as worthwhile. Fees are disclosed at opening with their conditions, and any change that raises a fee or reduces the yield needs 30 calendar days' written notice — with one exception, which is the subject of the next section.
Where the rate comes from, and why it moves without warning
A bank pays interest on your deposit because it can earn more on the money than it pays you. The deposit funds loans; it funds the securities the bank holds; and any balance the bank keeps at its Federal Reserve Bank earns interest on reserve balances, a rate the Board of Governors sets and publishes every business day. The deposit rate sits below what those uses earn, and the spread is the bank's margin. A money market account rate is therefore not a return on anything; it is a price the bank offers for funding, set by how much it wants and how cheaply it can get it elsewhere.
That is why the rate is variable, and why the variability is one-sided in practice. Regulation DD defines a variable-rate account as one whose rate "may change after the account is opened", and its notice rules exempt "changes in the interest rate and corresponding changes in the annual percentage yield in variable-rate accounts" from the 30-day advance notice that other adverse changes require. The bank must tell you, at opening, how the rate is determined and how often it can change; it does not have to tell you before it changes. A cut arrives on the statement.
Tiers make the same mechanism sharper: a bank can leave the headline tier alone and trim the tiers below it, and the account's advertised rate will not have moved.
The official baseline for what institutions in aggregate are paying is the FDIC's national rate table, published monthly on the third Monday and weighted by each institution's share of deposits; for money market accounts it averages the $10,000 and $100,000 tiers. The hub page on high-yield money market accounts prints that figure with its effective date and explains what "high-yield" means against it; money market account rates is where to go to find a real rate and verify it in five minutes. This page prints none. If you want a rate that cannot be cut, you are describing a certificate of deposit, and CD vs money market account prices the lock.
Tax, and the fund that is not an account
Interest on a money market account is ordinary income. The bank files a 1099-INT for anyone paid $10 or more in a year, and the interest is taxable whether or not the form arrives. Nothing is withheld by default, so a large balance produces a bill at filing time with no cash set aside for it — the point how a high-yield savings account works makes for the sibling product, to which every mechanism on this page applies, minus the cheques and usually minus the tiers.
A money market fund is none of the above. It is a mutual fund regulated by the SEC, it is not a deposit, it is not insured by the FDIC or the NCUA, and, for the retail and government funds a household is offered, its share price is designed to hold at a dollar rather than guaranteed to; institutional prime and tax-exempt funds price their shares at market value. A brokerage that offers you "a money market" almost always means the fund. The comparison page linked at the top covers the difference; the insurance page covers what happens when a brokerage sweeps your cash into bank accounts on your behalf.
What to actually do
Read the deposit agreement's transaction-limitations line before the rate. The federal six-transfer cap is gone; the bank's may not be. The number and the excess fee are on the account disclosure.
Confirm whether cheques or a card actually come with it. If neither does, you are choosing between two savings accounts, and the tier structure is the only difference.
Find which tier method applies and where your balance sits. Whole-balance or portion-of-balance; the disclosure says which. Work your blended rate from the schedule, not the headline.
Write down all three minimums. To open, to avoid the fee, to earn the stated APY. Then check which one your realistic balance clears.
Price the fee against the interest. Fee times twelve, against balance times rate. If the fee wins, the account is a cost.
Close on a crediting date. Ask first whether accrued, uncredited interest is paid through closing.
Check the APY earned on the statement against the APY advertised, twice a year. Variable-rate cuts need no notice. The statement is the notice.
Confirm the insurer by name. FDIC at a bank, NCUA at a credit union, and neither at a money market fund.
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