Money Market vs Checking Account: What Are the Differences?

Q: Is a money market account better than a checking account?

A money market account is not necessarily better than a checking account. Your individual circumstances may dictate which account is right for you. Depository institutions may offer different terms and conditions on their deposit accounts. Some checking accounts may offer competitive APYs. You may compare APYs and other terms and conditions to determine whether a money market account or checking account is better for your needs.

Q: What are the disadvantages of a money market account?

One of the biggest disadvantages of a money market account is that transaction limitations and fees may apply. It’s not necessarily a great account for meeting your everyday spending needs. Another disadvantage is that the APY on a money market account may not be as competitive as the APY offered on a high-yield savings account.

Sulaiman Abdur-RahmanUpdated February 28, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Banks, credit unions, and federal savings and loan associations may offer checking and money market accounts. A money market account is an interest-bearing deposit account that generally encourages saving, whereas a checking account is a deposit account that may encourage everyday spending. Below we compare the similarities and differences between a checking vs. money market account.

What Is a Money Market Account?

As mentioned above, a money market account is an interest-bearing deposit account that generally encourages saving. A money market account is similar to a savings account, but one of the differences between a money market account vs. savings account is that money market accounts may also give you the ability to write checks and withdraw funds from an ATM.A money market account may include the following terms and conditions:

Banks may impose a monthly service charge if you fail to maintain a minimum average monthly balance in your money market account

Banks may charge transaction fees if you withdraw funds or transfer funds more than six times in a monthly statement period

Account holders may earn compound interest on their deposits

The annual percentage yield on a money market account may generally be higher than the APY on a checking account.

How Do Money Market Accounts Work?

Money market accounts typically work like other types of bank accounts: You open an account with a bank, credit union, or thrift and deposit funds into the account.A money market account may function as a hybrid checking and savings account as follows:

You may open the account with a $0 deposit at certain financial institutions

Banks may charge a monthly service fee if you fail to maintain a minimum average monthly balance

You may earn interest on your deposits similar to the APYs on great savings accounts

Deposits may be insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA)

You may withdraw funds from your account at any time

You may write checks drawn from your account

Banks may charge fees if you withdraw funds or transfer funds more than six times in a statement period

Pros and Cons of Money Market Accounts

The below table highlights some of the pros and cons of money market accounts:

Pros	Cons
You may earn interest on your deposits	Some financial institutions may require a minimum deposit to open an account
You may withdraw funds from your account as needed	You may be charged a monthly service fee if you fail to maintain a stipulated minimum balance
You may write checks drawn from your account	Transaction fees may apply if you exceed any transaction limitations placed on your account
Your funds may be insured by the FDIC or NCUA up to $250K	The APY may not be right for you compared with other deposit accounts

What Is a Checking Account?

As mentioned earlier, a checking account is a deposit account that may encourage everyday spending. Checking accounts are typically linked to a debit card. You may use your debit card to make point-of-sale transactions and ATM withdrawals without restrictions.One of the core differences between a checking vs. money market account is the fee structure. Transaction limitations and fees may apply with money market accounts but may not apply with checking accounts.When comparing money market vs. checking accounts, the latter may promote easy access to your funds without any transaction limitations. One of the drawbacks with money market accounts is transaction fees may apply if you exceed certain withdrawal or transfer restrictions.

How Do Checking Accounts Work?

The process of opening a checking account is similar to opening a savings account: You establish your account with a regulated depository institution.A checking account may work as follows:

You may open the account with a $0 deposit at certain financial institutions
Banks may charge a monthly service fee if you fail to maintain a minimum average monthly balance
You may have a debit card linked to your checking account
You may write checks drawn from your checking account
You may earn interest on your deposits if you have an interest-bearing account
Deposits may be insured by the FDIC or NCUA
You may withdraw funds from your account at any time
You may face overdraft or insufficient funds fees if your account balance is overdrawn when making transactions

Pros and Cons of Checking Accounts

The below table highlights some of the pros and cons of checking accounts:

Pros	Cons
Account may be linked to a debit card	Your debit card may not feature the same benefits that you may get with a cash back rewards credit card
You may earn interest with an interest-bearing checking account	Some checking accounts may provide 0% APY or no compound interest on your deposits
You may write checks drawn from your account	You may be charged a monthly service fee if you fail to maintain a stipulated minimum balance
Transaction limitations may not apply when using your account to finance everyday transactions	You can face overdraft or insufficient funds fees if you overdraw your account

Checking vs Money Market Accounts

When comparing a money market vs. checking account, you can see some similarities and differences. Both accounts may charge overdraft or insufficient funds fees, and a money market account vs. checking account can both earn interest on deposits. Some checking accounts, however, don’t earn interest.Comparing an interest-bearing money market account vs. checking deposit account that earns no interest — the difference in APY is huge. The APY on an interest-bearing bank account may be higher during periods of high inflation. Depositing funds into a no-interest checking account may not be right for you if you’re interested in growing your savings with high-yield savings accounts.The below table highlights the similarities and differences between a money market account vs. checking deposit account:

Checking account	Money market account
Linked to a debit card	May include a debit-style bank card allowing account holders to withdraw funds from an ATM
May allow account holders to write checks drawn from the account	May allow account holders to write checks drawn from the account
Can be an interest-bearing account or a no-interest deposit account	Account holders can earn interest on deposits
Encourages everyday spending via debit card or personal check	Transaction limitations may discourage everyday spending

Can You Use a Money Market Account As a Checking Account?

A money market account vs. checking account can function in similar ways. A money market account may allow account holders to write checks drawn from the account. A money market account is an interest-bearing deposit account that may function as a checking account for paying bills. Can you use a money market account as a checking account? Yes, you may be able to use a money market account as a checking account to a limited degree.Customers may transfer funds from their money market accounts to a checking account, savings account, or any other deposit account.Recommended: Savings vs Checking Account

Can You Have Both a Checking and Money Market Account?

Yes, you can have a dedicated checking account and a money market account opened simultaneously. A customer can have multiple bank accounts at the same time. You may open both a money market account and checking account at the same financial institution or different financial institutions. Banks, credit unions, and federal savings and loan associations — or thrift institutions — may offer checking accounts and money market accounts.

The Takeaway

Money market accounts and checking accounts may both command competitive APYs. Both accounts can also permit check writing and ATM withdrawalsIf you want your savings to grow at the best rate for you, Lantern by SoFi can help. Our online banking marketplace allows you to compare APYs and choose an account that’s right for you.Compare high-interest savings accounts with Lantern.

Frequently Asked Questions

What is the difference between money market and checking?

Is a money market account better than a checking account?

What are the disadvantages of a money market account?

Photo credit: iStock/damircudic

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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