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What's the Difference Between a Checking Account and a Money Market Account?

While a checking account and money market account have some similar features, learn how they differ so that you pick the right account for your financial goals.

Checking accounts and money market accounts are two different types of bank accounts that share a few features.

Both have their own benefits and drawbacks and knowing these can help you make a decision about what the right account to have is.

In short:

Checking accounts are designed to be the center of your financial life.

You can move money in and out of the account easily and without paying fees.

Money market accounts are closer to savings accounts, but still, give you some flexibility when it comes to accessing your money.

Learn everything you need to know about checking accounts and money market accounts.

Checking Account

A checking account is a type of deposit account at a bank designed for easy, immediate, and regular access.

You and people you authorize should be able to access the account at any time to move money into or out of the account.

The hub of your financial activity

Checking accounts are designed for receiving paychecks, paying bills, withdrawing cash from at ATMs, and making payments to stores using attached debit cards.

This account serves as the center of your personal finances. All of your income arrives in your checking account before being sent to its destination.

Similarly, all of the money you spend comes out of your checking account.

Designed for transactions

Banks understand these needs of checking accounts, so they design them to be as easy to use as possible.

Generally, there are no fees for these types of regular transactions, because the point of the account is to handle regular transactions.

Watch out:

There may be monthly fees related to keeping the account open, but they can usually be avoided by receiving paycheck deposits or maintaining a certain balance.

The fact is:

The first bank account you should open is a checking account, and you should choose the bank you use carefully.

Having an easy to use checking account makes everything money-related easier. Having one that’s a chore to use can make even simple tasks complicated.

Money Market Account

A money market accounts are a deposit account that is generally designed for savings of large balance, but with some more transactional capabilities.

Like savings accounts, they then to offer higher interest rates than checking accounts do (if the checking account you choose pays interest at all).

That means that your balance will grow over time as the bank pays interest into the account.

For higher balances

Money market accounts are generally designed to be used by people with a lot of money available.

Keep an eye for:

They have high minimum balances and high fees when compared to savings accounts.

You may be able to avoid the fees, but you might need as much as $5,000 or more in the account to get the fee waived.

More ways to access funds

In addition to its savings nature, these accounts can offer:

  • A debit card
  • Check-writing ability
  • Online bill pay

How They're Similar

Both checking accounts and money market accounts are designed to give account holders easy access to their money, though to a different extent.

Checks

Both accounts are likely to offer the option to write checks.

You’ll receive a checkbook when you open your account or can order one when you find that you’re in need of checks.

You can then write a check against the balance of the account and give it to a friend or use it to pay a bill. When the recipient deposits the check, the money will be removed from your account.

In this way, you can easily spend the money you keep in either type of account.

Debit card access

Both accounts are also likely to offer debit cards. You can use your debit card to make purchases at stores that accept cards.

Simply swipe your card at the register and money will be automatically deducted from your account’s balance.

Furthermore:

You can also use the debit card to make withdrawals, and occasionally deposits, at ATMs. Visit an ATM, swipe your card, and enter the amount you’d like to withdraw.

You’ll get the corresponding amount of cash and that amount will be deducted from your balance. This can be convenient if you’re going somewhere that won’t accept card payments.

Online bill pay

If you’d rather avoid paying bills by check, nearly every checking account, and most money market accounts, offer online bill pay services.

You enter who you need to pay and the amount of money you need to send.

Here's the best part:

Your bank then transfers money to the recipient electronically. If the recipient doesn’t take electronic payments, the bank will send a check on your behalf.

How They Differ

The flexible access to your money is where the similarities between checking accounts and money market accounts end.

Excess transactions

The most important thing to know about money market accounts is that they are technically savings accounts.

This means that they are subject to the same restrictions that savings accounts are.

Principal among these is Regulation D, which limits the number of transactions that may be made on a savings or money market account. Each month, you may only make six transactions with a money market account, though some types of transactions don’t count towards this limit.

As a rule of thumb, in-person and ATM-based transactions do not count towards the limit.

Payments by checks, debit card, or online bill pay do.

If you exceed the six-transaction limit, your bank must charge you a fee.

There’s no way to avoid this fee other than waiting to make your next transaction. The fee applies to each excessive transaction, so it can add up quickly.

If you make too many excessive withdrawals, your bank could convert your money market account to a checking account.

This can happen without warning or your permission, which can result in a lot of lost interest.

Rates and minimum balance requirements

The other major difference between the account types if their interest rates and minimum balances.

Most checking accounts don’t pay any interest. Also, on basic checking accounts, minimum balance requirements aren't too high.

By contrast, money market accounts pay interest that is on-par or better than savings account interest rates.

That catch is that they have very high minimum balances, often in excess of $1,000.

That can make it difficult to open a money market account until you have a lot of money to save.

Which One is Right for You?

Here's the deal:

One account isn't necessarily better than the other.

They serve different purposes -- you could end up getting both of them if they fit your needs.

Checking first

Everybody needs a checking account, so the first bank account you open should open is always a checking account.

They give you an easy way to manage your money and pay your bills so that you don’t have to rely purely on cash-based transactions.

Once you’ve opened a checking account, your next move should be to open a savings account.

Then, consider a money market account

Online banks offer great savings accounts that have fantastic features.

You shouldn’t have trouble finding one that doesn’t charge a monthly fee and has no minimum balance. That means it’ll be easy for you to start saving and growing your account’s balance.

The primary benefit of a money market account:

It is easier to get money out of a money market account than a savings account.

Once you‘ve opened a savings account, you’ll know how often you tend to move money out of the account.

If you don’t need to access your savings account regularly, there’s not much reason for you to open a money market account.

The fact is:

Savings accounts provide everything you need to set money aside and help it grow. Adding a money market account can add complication to your life.

If you find that you do need to access the money in your savings account regularly, then you should consider a money market account.

Depending on how much money you have available, you might have to shop around for a good account. You’ll want to strike a balance between the minimum balance, fees, and features offered by the account.

Of course, you won’t be able to open an account if you can’t meet the minimum deposit requirement. Compare different accounts, and don’t be afraid to wait a little while to open an account if you need to save a bit more first.

As a rule of thumb:

You should never open a bank account that you know will force you to pay a fee.

Any fee you pay will more than offset the interest you earn.

There are so many fee-free options on the market that paying a fee for a bank account is almost never worth it.

Finally, make sure that the money market account you choose actually provides the convenience you’re looking for.

If you want to use the account to make online bill payments, but it only offers a checkbook, then there’s no reason to open the account.

Conclusion

Checking accounts and money market accounts both offer flexibility when it comes to accessing your money.

However, they are very different types of accounts.

Knowing the differences, and how to use each type of account, can make it easier to know which account you should open.

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