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The Covid-19 crisis, from a financial standpoint, has underscored the importance of having readily accessible savings. Whether you have more or less, there’s no need to worry about where to keep your savings: There are multiple ways to safely stash your cash and still earn interest on it.
When you’re looking for your safest options, two of the more popular interest-bearing accounts are money market accounts and savings accounts. They’re similar in many ways, but how do you know which one is better for you?
Let’s examine the basics of money markets and savings accounts, including their similarities and differences, then review situations that might make one type of account a better fit for you.
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What Is a Money Market Account?
A money market account is a consumer savings product available at most banks and credit unions. Money market accounts combine features of savings accounts and checking accounts—such as the ability to earn interest and write checks.
Money market accounts are highly liquid, meaning you can withdraw your money at any time. However, like savings accounts, some banks may limit you to six withdrawals a month. For this reason, money market accounts are best for storing money you won’t need to access regularly.
What Is a Savings Account?
Like a money market account, a savings account allows you to deposit money, earn interest and save up for short and long-term financial goals. A savings account usually offers a higher interest rate than a checking account, helping your money grow faster.
Many people open savings accounts to build a buffer for emergencies and other short-term cash needs. Like money market accounts, you can withdraw funds anytime but might pay a fee after six withdrawals in a single month. Savings accounts tend to earn lower interest than other savings products, such as certificates of deposit (CD) accounts.
Is a Money Market Account a Savings Account?
Though money market accounts are a type of savings account, they offer slightly different benefits. Unlike savings accounts, money market accounts provide a debit card and checks. The best money market accounts tend to have higher interest rates than regular savings accounts because the bank invests your money in low-risk, short-term assets.
Money Market Account Vs. Savings Account
| Money Market Account | Savings Account | |
|---|---|---|
FDIC insurance | Insured up to $250,000 | Insured up to $250,000 |
Transfers and withdrawals | Up to six withdrawals per month. Some banks no longer impose this limit. | Up to six withdrawals per month. Some banks no longer impose this limit. |
Interest | Earn variable rates often higher than those on savings accounts | Earn variable rates often lower than those on money market accounts |
Check-writing | Yes | No |
Debit cards | Yes | No, but some banks offer ATM cards |
How Are Money Market and Savings Accounts Similar?
Both money market and savings accounts are interest-bearing accounts offered by banks and credit unions. You’ll earn a modest return on your money in these accounts and receive your interest as a credit to your account on a monthly basis. The interest rate you earn can vary throughout the year, depending in part on whether the Federal Reserve raises or lowers interest rates.
Deposits made to both types of accounts are insured, either by the FDIC (for banks) or by the NCUA (for credit unions), to the limits allowed by law, in the event of bank or credit union failure.
Both accounts allow you to make as many deposits as you’d like each month.
Until recently, Regulation D limited withdrawals from these accounts to six per month (withdrawing cash at an ATM or by visiting a teller in person did not count toward the six). In April 2020, the Federal Reserve issued an interim final rule to suspend the limit on savings deposit withdrawals, to give savers better access to their funds. While these limits are set by federal law and not by the individual financial institution, banks and credit unions may still choose to impose a fee for exceeding the usual limit.
You can open both types of accounts with relative ease in person at your local financial institution. There also are a wide variety of online banks that now offer both types of accounts. Online banks typically require an online application and identity verification process similar to what you’d experience if you visited a bank or credit union in person.
How Are Money Market and Savings Accounts Different?
While both types of accounts share many similarities, the differences are important to note.
The primary difference between the accounts is the way you’ll access your funds. With a money market account, you’ll have a debit card and checkbook you can use to draw on your funds. Money market accounts generally don’t require a trip to the branch to tap into your cash.
With savings accounts, you’ll access funds in one of two ways. You can make an in-person visit and complete a withdrawal form, receiving a check or cash for the amount you want to withdraw. You also can access funds by transferring money digitally from your savings account to a checking account through the bank’s online portal.
When Is a Savings Account the Better Choice?
A savings account is an excellent choice for those just starting to save. With low to no minimums for opening balances, anyone can open one. The limited access to funds helps you establish regular savings habits without being tempted to tap into your piggy bank too often.
Savings accounts also make sense for consumers who prefer to consolidate their banking with one institution. Many banks and credit unions offer access to all of your accounts with a single login. This one-stop-shop for your finances helps you get a full snapshot of your checking and savings balances with just a few clicks.
Online savings accounts are a smart solution for those who want to earn the highest rate on their money with the lowest possible opening balance. You can perform online searches to compare a wide variety of online savings accounts. You can then use those comparison engines to find the account with the best balance of interest rate and low opening balance requirement.
When Is a Money Market Account the Better Choice?
For those who want checking account-like access to their savings, a money market account may be the better choice.
With money market accounts, you’ll generally have both a debit card and a checkbook to access your funds. You won’t have to go to a bank or credit union branch to conduct a withdrawal unless you need certified funds, like a cashier’s check.
If you’re concerned with receiving the highest yield for your savings and can meet the minimum deposit requirements, you may prefer a money market account. The minimum to open a money market account can be as low as $0 but often hovers in the $500 to $5,000 range. Some money market accounts require higher minimum balances, up to $10,000 or more, to qualify for their highest interest rates.
You can use online comparison tools to review available money market accounts, especially those offered by online banks. You can then find an institution you’re comfortable with that offers the best possible combination of opening balance and interest rate.
The Final Verdict?
Both savings accounts and money market accounts offer advantages. In the long run, however, the difference in interest rates between them is usually minimal.
With the increasing popularity of online banks—and of online banking services from traditional brick-and-mortar banks—it’s simple to do a web search and find money market and savings accounts with similar yields and low minimums.
The ultimate decision will be yours and might come down to answering the following questions:
- Do you want your money close by at a branch you can visit? If so, you may be limited to the rates and account types offered by a local financial institution.
- Are you concerned about getting the highest rate? If so, you can expand your search to the high-yield savings and money market accounts offered by online banks.
- Do you need easy, periodic access to your savings? If so, a money market account with debit and checkbook access might be ideal.
- Would you prefer limited access to funds so you can build your savings? If so, consider a savings account, to keep your funds at arm’s distance.
Whichever type of account you choose, there are a wide variety of banks and credit unions ready to compete for your savings business. Do your research, know your liquidity needs and set your account up with an institution you trust to help you reach your financial goals.
Frequently Asked Questions (FAQs)
Do money market and savings accounts earn different interest rates?
These two types of accounts commonly earn similar, yet different, interest rates. Money market accounts tend to earn higher rates, and here’s why.
Traditionally, money market accounts have offered higher interest rates as a reward for the higher initial deposit amounts required to open the accounts. Savings accounts typically earn slightly lower interest and have low to no minimum opening balance requirements.
With the overall economic uncertainty caused by the global coronavirus pandemic, interest rates are fluctuating more than usual, so you may see money market accounts that are paying slightly lower rates and high-yield savings accounts that are paying slightly higher rates. The differences in interest rates between the two types of accounts are usually minor.
Which is safer: a savings account or money market account?
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it’s important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
What is the average interest rate on a savings account?
According to the FDIC, the average interest rate on savings accounts nationwide is 0.21% as of October 2022. Interest rates on savings accounts fluctuate depending on market conditions. High-yield savings accounts may offer higher rates than traditional savings accounts.
What is the average interest rate on a money market account?
According to the FDIC, the average interest rate on a money market account is 0.23% as of October 2022. Some online banks offer money market accounts with interest rates far above the national average.
