Money market accounts and savings accounts have a few key differences. Below, we’ll break down both and discuss how to determine which one is best for you.
Overview of Money Market Accounts vs. Savings Accounts
According to recent data, 45% of Americans have no money in savings, and 24% have less than $1,000. Savings can protect you and your family from potential financial disaster. It’s important to put money away and be able to easily access it when you need it. But which account is best for you to park your money?
| Features | Money Market Accounts | Savings Accounts |
| FDIC or NCUA insured | Yes | Yes |
| Earns interest | Yes | Yes |
| Comes with checks | Yes | No |
| Comes with a debit card | Yes | No |
| ATM access | Yes | Yes |
| Limited transfers (withdrawals and deposits) | Yes | Yes |
| Minimum balance requirements | Yes | Depends |
| Monthly fees | Depends | Depends |
What Is a Money Market Account?
A money market account (MMA) has features of a savings account and a checking account. Like a checking account, some MMAs offer debit and check-writing privileges. But like a savings account, there are transaction limits (usually six per month). An MMA may also require a high minimum balance.
Historically, MMAs have been attractive because they offered higher interest rates than traditional savings accounts. Today, however, rates on MMAs and savings account are often similar. That said, the current average rate on money market accounts is 0.08% APY, which is slightly higher than the average for regular savings accounts (0.07% APY).
But you can find much higher interest rates for MMAs. Many online banks are currently offering money market rates well over 1.00% APY. You can check out our list of the best money market account rates here.
What Is a Savings Account?
A savings account typically earns a moderate interest rate. It can also come with account minimums, but they are usually much lower than an MMA. Like an MMA, savings accounts limit the number of monthly transactions.
Savings accounts do not come with debit or check-writing privileges. But at most financial institutions, you can pair them with a basic checking account. So, you may be able to withdraw money from your savings at an ATM using your checking account debit card.
Savings accounts can be a great tool to set aside extra money for emergencies or for small savings goals. Like money market accounts, they are FDIC insured. You can check out our list of best savings account rates here.
Money Market Account Pros and Cons
Money Market Account Pros:
- Money market accounts may offer higher interest rates than regular savings accounts. Money market accounts may allow you to earn a higher rate on your money, which allows you to save more, faster.
- Money market accounts may come with checking privileges. Money market accounts do allow slightly easier access to your money. You can debit or write a check directly from an MMA.
Money Market Account Cons:
- Some high-yield savings accounts offer higher rates. The average money market account rate is higher than regular savings accounts. But some high-yield savings accounts offer higher rates than a money market account.
- There is a transaction limit. Usually, the limit is six transactions per month.
- There are minimums associated with some money market accounts. Some money market accounts require you to maintain a high minimum balance.
Savings Account Pros and Cons
Savings Account Pros:
- There are fewer minimums and fees associated with regular savings accounts. You can find savings accounts with no minimum balance or monthly fees. That makes it easy to maintain the account.
- You can still earn high interest on your money. There are high-yield savings accounts that can beat MMA rates.
Savings Account Cons:
- You may earn more interest on other types of accounts. If you have a large amount of money in your savings, you may be better off with another account. An MMA or a CD can give you a higher rate. So you can earn more interest on your money.
- Savings accounts do not come with checking privileges. Savings are normally linked to a checking account. But, you cannot spend directly from your savings account.
- There is a transaction limit. Like a money market account, you’re only allowed to make a limited number of transactions.
Why Choose a Money Market Account?
A money market account is certainly a good and safe way to set a large amount of money aside. It’s relative liquid and a good option for a larger purchase, like a down payment on a home or a vehicle. When the time comes to access your money, you can make a payment or write a check directly from the account.
Why Choose a Savings Account?
A savings account is an excellent option for an emergency fund or for smaller goals savings, say $1k to $10k. It’s helpful to have money set aside in case of a medical or vehicle emergency. You’ll be able to pull money from your savings account instead of using a credit card or a loan.
Again, many banks offer savings accounts without minimum balance requirements or monthly fees. With a savings account, your money is still relatively accessible. Especially if it’s linked to your checking account.
FAQs
Can I lose money in a money market account?
You won’t lose money parked in a money market account if it’s FDIC or NCUA insured. However, a misconception is that money market accounts are safeguarded against inflation. They are not.
What is better than a money market account?
It depends on your situation and what you are looking for. High-yield savings accounts can have higher rates than money market accounts. However, you won’t be able to withdraw money directly or write checks.
Do money market accounts have fees?
It depends on your financial institution. Some money market accounts have minimum balance requirements. So you can get hit with fees if you are not meeting the minimum. They are also limited in the number of transactions that are permitted, which is another way that fees can accrue.
How can I earn the most interest on my money?
In order to earn the most interest on your money, you want to get the highest interest rate that works for your situation. You also want to keep as much of your money in a high-interest earning account for as long as possible.
Final Thoughts
Both savings accounts and money market accounts can be good options for emergency and other short-term savings. Focus on the interest rate offered, fees and minimum deposit requirements to pick the best option for your specific circumstances.