Money market accounts (MMAs) — not to be confused with money market funds — combine features of savings and checking accounts, allowing holders to write a limited number of checks and get a higher interest rate than traditional savings accounts.
However, enjoying the best of both worlds comes at a price, and sometimes a hefty one.
This is why it's important to consider the fees in advance to ensure this is the right option to maximize your savings.
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Why money market accounts seem appealing
It’s easy to see why so many people opt for money market accounts. Being able to write a check from what’s essentially a savings account seems like freedom. Although it’s less common, some money market accounts even come with a debit card, usually with limits on transactions.
MMAs are also attractive because they sometimes offer higher interest rates than traditional savings accounts. Our top picks for the best money market accounts earn up to 4.35%.
Explore some of the top MMA accounts, using the tool below, powerd by Bankrate:
However, the returns are not as high as those offered on other investment options. Importantly, you might have to keep a certain balance to earn the high interest rate that first attracted you.
Most money market accounts utilize a tiered system tied to balance amounts. For example, you might earn the lowest possible rate on balances up to $9,999 and the highest possible rate on balances over $25,000.
Currently, the average interest rate on money market accounts is 0.59% APY, as of August. High-yield MMAs from online banks can offer interest rates over 4%.
Another bonus with MMAs is that the money should be protected against institutional failure by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration for credit unions.
Protection is up to $250,000 per account ownership type and per depositor, but it’s not a bad idea to check that the financial institution has coverage.
The most common (and costly) fees
Despite the appealing nature of money market accounts, fees can quickly eat into your savings if you don’t pay attention. Some fees can be waived or avoided in certain situations, depending on the financial institution’s rules.
Here are some of the most common money market account fees:
- Monthly fees: Many MMAs come with maintenance fees charged every month, typically from $10 to $25. If you maintain a certain minimum balance or set up qualifying direct deposits, some institutions might waive this fee.
- Fees for excess withdrawals: Many institutions set limits on the number of withdrawals you can make from your MMA in a month. If you go over, you might be charged a fee. Typically, ATM withdrawals aren’t included in limits, but every other type is, including transactions made with a debit card. The maximum number of withdrawals from an MMA is around six per month.
- Minimum balance fees: Keep an eye on your balance because some institutions charge a fee if it falls below a certain amount. This can be as little as $1,000 or much higher, depending on the institution.
- ATM fees: If your MMA comes with a debit card, be wary of using it to withdraw from an ATM. Some institutions charge a fee even when withdrawing from their ATM. If that’s not the case, you can be sure there’ll be a fee when withdrawing from an ATM outside their network.
- Overdraft fees: Like many other bank accounts, MMAs typically charge a fee if you overdraw the account. These fees can range from $30 to $35 per transaction.
- Fees for closing the account too early: Be sure you want the account, and pay attention to the minimum holding period. Some institutions charge a fee if you close your MMA too soon after opening it.
Real-world examples: How money market account fees eat into returns
One of the simplest ways to see how MMA fees can eat into your returns is to check the fees you’re charged in a given year against the interest earned.
For example, if you have a money market account that charges a $10 maintenance fee every month, the $120 in maintenance fees over a year would potentially negate much of the interest earned, especially if you didn’t add anything to your balance.
Now consider your possible earnings: 4.35% interest annually on a $5,000 balance, for example, would earn you $217. So, in this instance, you would save less than $100 a year, given the fees.
Another way fees eat into your savings is through compounding. Every time a fee is deducted from your balance, it means that a lower balance earns less interest in future months, resulting in diminished compounding.
Alternatives: High-yield savings or no-fee MMAs
With so many potential fees eating away at your savings, money market accounts might not be the best option for everyone. However, not every MMA charges fees, so it pays to shop around. Here are some examples of no-fee MMAs:
- Sallie Mae Online Money Market Account
- Synchrony Bank Money Market Account
- Ally Money Market Account
- Discover Money Market Account
While the above options don’t charge monthly maintenance fees and have a $0 minimum opening balance and deposit, they may have other fees attached to them that can easily be avoided.
For example, if you avoid overdrawing the account, you won’t have to worry about overdraft fees, whether or not the institution charges them.
Alternatively, if you don’t care about being able to write checks from the account, you might opt for a high-yield savings account instead. Many high-yield savings accounts offer rates over 4%, making them an attractive alternative to an MMA.
Tips to protect your savings
The most important thing to remember when shopping around for money market accounts is to carefully review the list of applicable fees. Those monthly maintenance fees can be especially hard to avoid — and they can be the biggest culprits when it comes to eating away at your savings.
It’s also important to verify that they have insurance with the FDIC or NCUA. If they do, keep your balance within the insurance limit and track your minimum balance versus any minimum required by the financial institution. Finally, stick to any withdrawal limits placed on the account and monitor interest rates for better deals.
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