High-Yield Checking Rates Can Beat Money Market Accounts—But There’s a Catch

Money market accounts (MMAs) are interest-bearing savings accounts that have check writing privileges, and usually only allow six checks, withdraws, or transfers every month. High-yield checking accounts, on the other hand, are transaction accounts that allow unlimited checks and withdrawals every month, and earn interest. You may be able to earn slightly better annual percentage yields with the best high-yield checking rates than with the best MMA rates, but there's usually a catch.

While both can have high minimum balance requirements, high-yield checking accounts also often require a large number of monthly debit card and other kinds of transactions. Either one or both may pay better than the typical savings account. Your spending habits and savings needs will determine which one of these accounts is right for you, or whether you need both—or neither.

What Is a Money Market Account?

Money market accounts are short-term interest-bearing savings accounts that tend to deliver interest rates higher than those for regular savings accounts, but they often require a higher minimum deposit to receive the highest rate. As with high-interest checking accounts, MMAs have a variable interest rate, which means yields will rise and fall with interest rates in the overall market. 

One of the drawbacks of money market accounts versus checking accounts is that MMAs may have limited check-writing and balance-transfer privileges. Historically, the Federal Reserve's Regulation D limited depositors to a monthly total of six transfers and electronic payments, but the rule was discontinued in early 2020.

Still, many banks impose their own limits on transfers and checks, and if you go over it, you may be hit with a fine. And if you don't stop exceeding the check-writing limit, the account may be converted to a checking account.

Another similarity with high-interest checking accounts is that money market accounts opened at banks are insured by the Federal Deposit Insurance Corp. (FDIC), while those opened in credit unions are insured by the National Credit Union Administration (NCUA). Both agencies provide insurance up to $250,000 per depositor per account, which comes into force if the institution fails. Multiple insurable accounts at the same institution (checking, savings, certificate of deposit) count toward the $250,000 insurance limit. Joint accounts are insured for $500,000.

What Is a High-Yield Checking Account?

High-yield checking accounts have all the features that come with traditional checking accounts. Many of the accounts offer unlimited checks, a debit card, online account management, and perks such as rewards points and free overdraft protection. Many banks and credit unions will waive the monthly maintenance fee if the minimum daily balance is maintained.

The rates for high-yield checking accounts are usually capped, meaning that the top interest rate is paid only up to a specific amount of money on deposit. Maximum caps of $10,000 or $15,000 are the most common, though some accounts specify just $5,000 while a few rare options pay top rates on balances as high as $20,000 or $25,000. Deposits that exceed the cap earn a much lower rate—as low as 0.1%. 

You have to meet a number of conditions with high-yield checking accounts to earn that higher rate, which can include having a direct deposit into the account and signing up for electronic statements.

The most onerous condition that many high-yield checking accounts include, however, is a requirement to make a certain number of transactions every month. Typically, high-yield checking accounts require you to use your debit card 10, 12, or even 15 times each month, while other accounts may stipulate some minimum dollar amount spent on debit.

For instance, you may need to make 15 debit card transactions. If you make fewer, you forfeit the higher interest rate and instead earn a very low rate for the statement period. Also, high-yield checking accounts sometimes require at least one online bill pay or transfer from the account per statement period.

None of these requirements for high-yield checking accounts are insurmountable. However, meeting them means that you have to actively manage the account. Most people are used to a more passive approach to account management.

Rates Compared

Average MMAs pay higher rates than average savings accounts, which pay better than average interest-bearing checking accounts. The difference in rates between an MMA and an average checking account can be significant.

But when you look at the very best high-yield savings accounts compared to the best money market accounts and best high-yield checking accounts, the rates are a lot closer. In fact, the best high-yield checking accounts tend to pay a little higher rates than either of those types of accounts when the prevailing interest rates are high, but Investopedia research has found that they tend to pay a lot more than savings or MMA accounts in a low-interest-rate environment.

Because the relationships can shift, you'll need to compare rates across all account types when you're thinking about opening one.

Which Is Better for Me?

High-yield checking accounts and money market accounts are not necessarily interchangeable, so you may want both, or neither.

While yields for the very best checking accounts may outpace the best money market account rates, the rates are close enough that that may not be a factor. The main difference boils down to withdrawals and other transactions on the account. An MMA may very well limit how many withdrawals and transactions you can make, while a high-yield checking account may have the opposite requirement: You may need to make a high number of transactions to get the best rate.

You'll need to compare rates carefully, as one type of account may pay much better depending on the prevailing rate environment. Then think about what you really want to use the account for, and what you're able to do to keep the high rate.

If you want a transactional account you can use to pay bills and make everyday purchases with, a high-yield checking account may be your best bet. But that's also assuming that in the normal course of a month, you expect to make the required number of debit transactions and meet any automatic bill payment requirements.

On the other hand, if you want something more like a savings account that allows you to write a few checks a month, a money market account may be less hassle.

You'll also need to compare the deposit requirements for each type of account. Does the high-yield checking account only pay the top rate for a relatively small deposit amount—smaller than you'd like? Does the MMA require a higher deposit than you can make or keep up on an ongoing basis?

The answers to all of these questions will help you decide which type of account is right for you. It could be that the best answer of all is to go with a regular checking account and a high-yield savings account instead of either of the other accounts.

The Bottom Line

Both high-yield checking accounts and money market accounts can earn you more in interest than a traditional savings account. Also, both accounts give you access to your money when you need it. The right account for you largely depends on the number of monthly banking transactions you typically make and whether you could meet the minimum requirements for each account.

In some cases, people like to maintain both a traditional checking account and a money market account to maximize the amount of interest they can earn on these funds in the short term.