Key takeaways
- A money market account often comes with features associated with a checking account such as a debit card or a checkbook, while a savings account does not typically offer those kinds of spending tools.
- Both money market accounts and savings accounts tend to offer higher interest rates than checking accounts.
- High-yield savings accounts are often better choices than regular savings accounts when it comes to earning interest.
- If you can meet the minimum balance requirements for both, it can make sense to open a savings account and a money market account to distinguish between short-term and long-term savings objectives.
Money market accounts and savings accounts are both financial products that allow you to save and withdraw cash. These types of deposit accounts provide easy access to your funds and may pay competitive yields, both of which can be important during periods of economic recession and inflation.
While savings accounts and money market accounts share some similar features, there are key differences in how you’re able to use them. Understanding the rules of each can help you decide which one is best for you.
Savings accounts vs. money market accounts
Both savings accounts and money market accounts allow you to deposit money and earn interest. Unlike savings accounts, however, money market accounts often come with transactional features — such as the ability to write a limited number of checks and make bill payments each month. Some money market accounts also come with a debit card.
The following chart breaks down which features may be provided with savings accounts and money market accounts:
| Savings account | Money market account | |
|---|---|---|
| Earns interest | Yes | Yes |
| ATM withdrawals | Yes | Yes |
| Unlimited withdrawals without excessive transaction fees* | No | No |
| Check-writing | No | Sometimes |
| Debit card | No | Sometimes |
| Automated deposits possible | Yes | Yes |
| FDIC/NCUA-insured | Yes | Yes |
*The Federal Reserve removed Regulation D withdrawal limitations in 2020 that banks had been required to impose on savings accounts. This allowed banks to let customers make more than the standard six maximum withdrawals and transfers each month without incurring any excessive transaction fees. Check with your bank to clarify its withdrawal limit rules; many banks didn’t ease their policies despite the Fed ruling.
Key statistics on savings accounts and money market accounts
- The national average annual percentage yield (APY) for savings accounts as of July 22, 2024 is 0.59 percent. However, rates more than 10 times higher can be found at some online banks and credit unions.
- The national average yield for money market accounts is 0.46 percent as of July 22, 2024. Rates more than 8 times higher can be found, however, by shopping around.
- More than half of savers (51 percent) have a savings or money market account with an online bank, according to Bankrate’s Saving Account Survey.
- The median balance for transactional accounts, such as savings accounts and money market accounts, is $8,000.
What is a savings account?
A savings account is a financial product at a bank or other financial institution that allows you to deposit money, and it typically earns a modest amount of interest. The best savings accounts, however, pay 5 percent or higher – which is more than 10 times the national savings average.
A savings account usually doesn’t require a lot of money to open. In some cases, there’s no minimum deposit whatsoever. However, you’ll want to start to build the balance – no matter who you are or what you’re saving for. It’s a good place for an emergency fund, since you can access the money easily at any time to handle unplanned expenses such a car repair, a medical bill or a sudden loss in income.
As an interest-earning deposit account, a savings account is similar to a money market account in that unlimited deposits are allowed but withdrawals may be limited — up to six per month.
Like a money market account, they are often insured through the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Association (NCUA) for up to $250,000 per account holder, per financial institution, per ownership category.
Pros and cons of savings accounts
Pros
- Pays interest
- Comes with FDIC or NCUA insurance if at an insured bank or credit union
- Offers easy access whenever you need the funds
Cons
- Some banks pay nominal interest rates of just 0.01 percent
- Withdrawals may be limited to a certain amount before paying a fee
- Some banks have minimum balance requirements to avoid monthly fees
Despite any potential downsides associated with certain savings accounts, it’s critical to have some type of account designed for planning for the future and setting aside money for potential emergencies.
What is a money market account?
A money market account is an interest-bearing account that combines some of the same features of a checking account and a savings account. Money market accounts commonly allow you to pay bills, use a debit card and write checks.
Like savings accounts, money market accounts feature variable interest rates. Unlike most savings accounts, however, the rates tied to money market accounts are commonly tiered, meaning larger balances earn higher rates.
The national average money market account interest rate is 0.46 as of July 22, 2024. However, like savings accounts, the best money market accounts currently pay upwards of 5 percent. If you have a smaller amount to deposit, a savings account may be the better option.
While it resembles a checking account, a money market can’t fully replace one. Some banks limit the number of withdrawals or transfers you can make each month — often allowing up to six before charging a fee for any additional transactions. Ultimately, if you’d like an interest-earning account that allows you to occasionally pay a bill or two, a money market account is a good option.
While withdrawing and spending the funds is often easier with a money market than a savings account, savers who want to make it more difficult to spend their money may be better off with a savings account.
Also, note that money market accounts and money market funds – easily confused due to their similar names – are not the same thing.
Pros and cons of money market accounts
Pros
- Competitive APYs available
- Flexibility to make payments with some including a debit card and/or a checkbook
- FDIC/NCUA insurance if at an insured bank or credit union
Cons
- May require higher balance to earn the best rate
- Number of monthly transactions may be limited
- Easy access to funds can work against you if you’re aiming to limit spending
While there are some unique drawbacks to certain money market account offerings, plenty of depositors opt to have a money market account alongside a savings account for the ability to earn extra interest while paying bills and using a debit card.
How to choose between a money market account and a savings account
You don’t have to choose between a money market account and a savings account — you can have both, and many banks offer both options. For example, you could have a savings account to set aside money for goals such as an upcoming trip or a down payment on a house, as well as a money market account where you keep some money so you can pay bills, use a debit card or write checks.
However, if you want to decide between a money market account and a savings account, here’s what to consider.
Determine what the money’s for
Start by determining the use of the funds. You may be interested in growing an emergency fund, saving for a down payment on a house or paying for a vacation. Once you know your purpose for the money, review the pros and cons of each product to determine which one is best for you. A savings account may be all you need if you’re simply saving money for later use.
Money market accounts are also good options for saving money for specific goals. However, because they often allow for check-writing and bill payments, you may view this account as more of a transactional account. This can come in handy for paying an occasional bill or two, but if you’d rather not be tempted to make unnecessary purchases using checks or a debit card, it might be best to stick with a savings account.
Compare interest rates
You can find competitive interest rates on both savings accounts and money market accounts, so be sure to shop around. Don’t just settle for a standard savings account, either. High-yield savings accounts are appropriately named: You’ll be able to earn better rates with these accounts.
Money market accounts may feature tiered rates based on the balance amount, paying higher yields for higher balance thresholds. Be sure to read the fine print and weigh how much you expect to keep in the account against whether you’ll be eligible for the best rates the bank or credit union is offering.
Watch out for fees
Some savings and money market accounts may charge you a monthly maintenance fee if you don’t meet certain conditions such as having a minimum balance or receiving at least one deposit per month. Make sure you follow an account’s requirements to avoid monthly fees that can cut into growing your savings. Or even better, find a bank that doesn’t charge monthly fees.
Most savings and money market accounts are limited to six transfers or withdrawals per month, though your bank may have lifted this restriction after the Federal Reserve ruling. Remember to check with your bank to confirm an account’s withdrawal limits so you don’t exceed them, or you may be charged excess withdrawal fees. These fees aren’t typically advertised, either, so you’ll need to read the account disclosure or the FAQs to get a full picture of the bank’s fee structure.
Open the account
After you’ve done your research, you’ll need to gather some basic information – regardless of which type of account you decide to open. For your application, you’ll need a government-issued ID, Social Security number, date of birth, address and contact information.
You may need to make a minimum deposit to open a savings account or money market account. You will need the routing number and bank account number for the account you will be sending funds from.
Bottom line
Both savings and money market accounts are great tools for any type of economic environment, but they’re even more valuable in today’s high-rate climate. As you work to make sure that you preserve your purchasing power, the best high-yield savings accounts and money market accounts are strong tools to fight inflation. Consider the APY, minimum balance requirements and fees as you look at different options.
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 up retirement savings or pursuing other investments.
