Financial vehicles comparison: Money market account versus savings account - A breakdown of their key distinctions.
Let's get down to the nitty-gritty:
- A money market account, much like a checking account, usually offers features such as a debit card or checkbook, whereas a savings account typically does not.
- High-yield savings accounts tend to offer better interest rates compared to regular savings accounts, making them a better choice in such situations.
- If you're planning short-term and long-term savings, having both a savings account and a money market account can be beneficial. Just remember, a money market account combines the features of both a checking and savings account, and is federally insured, while a money market fund isn't.
For clarity, here's a quick comparison between savings accounts and money market accounts:
| Savings account | Money market account || --- | --- || Earns interest | Yes | Yes || ATM withdrawals | Yes | Yes || Limited withdrawals | Yes | Yes || Check-writing | No | Sometimes || Debit card | No | Sometimes || Automated deposits | Yes | Yes || Federally insured | Yes | Yes |
Knowing when to use each account can help you make an informed decision:
Savings accounts vs. money market accounts
Earns interest
Savings accounts and money market accounts share similarities, but their usability varies. With a savings account, you can deposit money, earn interest, and make ATM withdrawals. In contrast, money market accounts often provide additional transactional features such as limited check-writing and debit card access.
Yes
Key statistics on savings accounts and money market accounts
Yes
- The average annual percentage yield (APY) for savings accounts is 0.54% as of Jan 20, 2025, with rates exceeding 10 times this figure found in certain online banks and credit unions.
- The average yield for money market accounts is 0.40%, with rates often exceeding this figure by more than 10 times when shopping around.
- More than half (51%) of savers maintain a savings or money market account with an online bank, according to survey data.
- The median balance for transactional accounts is $8,000.
Choosing between a money market account and a savings account
ATM withdrawals
Ultimately, you can have both accounts, and many banks offer both options. It all comes down to your financial objectives. If you're focusing on saving for a specific purpose, a savings account may be all you need.
Yes
However, if you'd like to decide between a money market account and a savings account, consider these factors:
Yes
Determine the purpose of the funds
Ask yourself: Is this money for short-term needs such as emergencies, or is it earmarked for long-term goals like a down payment on a house? When you've figured this out, you'll be better equipped to decide between the two products.
Unlimited withdrawals without excessive transaction fees*
Compare interest rates
No
High-yield savings accounts offer better interest rates compared to typical savings accounts, so be sure to shop around and don't settle for mediocre returns. Money market accounts also offer competitive interest rates, but they may require larger balances to qualify for higher yields.
No
Be mindful of fees
Fees can eat into your savings, so remember to keep track of monthly maintenance fees, potential excessive withdrawal fees, and any other hidden charges.
Check-writing
Pros and Cons of Savings Accounts
No
Pros
Sometimes
- Offers reasonable interest rates
- Insured by the Federal Deposit Insurance Corporation (FDIC)*Easily accessible in times of need
Cons
Debit card
- Lower rates compared to money market accounts
- Puny interest rates in some banks
- Withdrawal limitations in certain banks
No
Despite these potential drawbacks, having some type of savings account for future planning and emergency purposes remains essential.
Sometimes
Pros and Cons of Money Market Accounts
Pros
Automated deposits possible
- Competitive interest rates
- Flexibility to make payments
- Insured by the FDIC
Yes
Cons
Yes
- Higher balance requirements for better yields
- Withdrawal limitations
- Easy access to funds may encourage unnecessary spending
While there are some drawbacks to certain money market account offerings, many depositors prefer the added flexibility and potential growth of a money market account in conjunction with a savings account.
FDIC/NCUA-insured
Final Thoughts
Yes
In today's economic climate, both savings and money market accounts can be valuable tools for safeguarding your purchasing power. As you work to preserve your spending power, both high-yield savings accounts and money market accounts are strong contenders to combat inflation. Compare features, interest rates, and fees as you explore different options.
Yes
Once you've defined your goals and gotten on track with a high-yield savings account or a money market account – or both – it's a great time to also focus on building retirement savings or pursuing other investments.
- In some situations, a money market account might be more suitable due to its additional transactional features like limited check-writing and debit card access, even though savings accounts tend to have higher average interest rates.
- A quick comparison between savings accounts and money market accounts indicates that both can help you earn interest, make ATM withdrawals, and have federally insured balances, but money market accounts might offer check-writing and debit card access in some cases.
- When considering the industry trends, more than half of savers maintain a savings or money market account with an online bank, and the median balance for transactional accounts is $8,000.
- To make an informed decision regarding savings accounts or money market accounts, analyze factors such as the purpose of your funds, compare interest rates, and pay attention to potential fees and balance requirements.
- By incorporating both high-yield savings accounts and money market accounts, you can create a well-rounded personal-finance strategy that can provide the flexibility to meet your short-term and long-term financial goals in the evolving banking-and-insurance industry.
