Banking » Guides » Money Market Vs Saving Accounts: Which Is Better For You?
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Money Market Vs Saving Accounts: Which Is Better For You?

Both saving accounts and money market account (MMs) considered as a safe, reliable and solid investment. However - there are a couple of differences between them you have to understand before getting a decision. MMs vs Saving Accounts - which of them is the right investment for you?
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Money Market Vs Saving Accounts: Which Is Better For You?

What is a Savings Account?

When it comes to the best place to deposit your money you’re looking at a savings account. These accounts give you the ability to not just deposit money but to keep it safe and still withdraw money too, and you’ll earn interest. For the most part you’re going to get these with a bank or credit union and they’ll be FDIC insured. Of course, you’re not going to get much in the way of interest, with the average amount being under 2% as of 2019. Even still, a little is better than nothing.

How Does it Work?

A savings account is considered a ‘time deposit.’ These are accounts that your bank can require you to keep for a set period of time without making a withdrawal or they can charge you some type of penalty. Usually, you won’t have these requirements but you may have a limit on the number of withdrawals that you can make in an account in a single month. You also might have fees monthly for these types of accounts and those fees might be based on how much money you have in the account. Plus, you’re not going to get checks.

The federal government actually limits the number of times that you can withdraw money out of a savings account in a single month, though you can make as many deposits as you want. In general, telephone or electronic withdrawals are limited to only 6 in a single statement cycle, which generally runs about 30 days (though you’ll have to talk with your institution to find out for sure).

What is a Money Market Account?

These types of accounts are somewhere between a checking account and a savings account in some of the best ways. For example, you’re usually going to get a slightly higher interest rate than a savings account. That will depend on the institution that you go with though.

You’re also going to have an ATM card and the ability to write checks. That means you don’t have to go into a bank or credit union and make a request for your money. Of course, you may not get these features so you’ll have to talk to the institution and you may have to request them.

How Does it Work?

Generally, you’re going to get a slightly higher interest rate here than you will with a savings account.

If you’re looking at saving some money for a specific goal that’s more than a couple years down the road but not quite a decade out you may want to look at a money market account. Larger purchases, like a mortgage, could be great for this type of account because you’re going to get a little more interest built up than if you just put the money into a savings account.

Of course, it’s not just about high interest rates. There are going to be other aspects you need to pay attention to. For example, your institution might require a minimum balance so you can avoid having to pay fees. The balance may also affect the interest rate that you get. For some, it could be a few hundred dollars and others might require thousands of dollars.

Comparing Money Market and Savings Accounts

SavingsMoney Market
Access to Your FundElectronic transfer/phone callATM, debit card, check
Minimum Balance RequiredNone$1,000-$2,500
InterestApprox. 2%Approx. 2.5%
Withdrawal Restrictions3-6 per month3-6 per month
FeesLittle to noneLittle to none
ProtectionFDIC protected up to $250,000FDIC protected up to $250,000

 

The Main Differences

In spite of the similarities, money market and saving accounts have a couple of differences:

  • Increase Your Interest with Money Market Accounts

Generally, you’ve always been able to get better interest with a money market account over a savings account. These rates are starting to go down, however, and in most cases, you won’t have dramatic changes.

  • Minimum Balances are Higher with Money Market Accounts

In general, you’ll need to have a little more money in a money market account than savings. This means you have to have a set amount in the account according to the bank. It could be anywhere from $1,000 to $2,500 or more.

With a savings account, the idea is to be able to store your money more securely. That means there’s generally no or a low minimum than other options. In fact, it’s not uncommon for a savings account to have absolutely no average daily balance or opening balance.

  • Easy access to Accounts

One of the biggest things that you’ll find differences between a savings account and a money market account is how you can access your money. With a money market account, you can generally right checks and you can get a debit or ATM card.

With a savings account, you generally have to call the bank, make in-person requests or use an electronic transfer to get your money.

Where Are They The Same?

  • Monthly Fees

When it comes to either of these types of accounts banks are generally going to make more in interest on the loans that they’re lending your money out for than they will spend in paying interest to you. That means they’re likely going to have very little in the way of fees if anything at all. If it doesn’t cost them much of anything they’re not going to worry about charging you.

  • Limits on Withdrawals

With either of these types of accounts you could have a set amount that you’re allowed to withdraw at any given time. In general, you’ll be limited to 6 withdrawals in a month or billing cycle. Any more than this and you could be charged a fee. Just make sure you know what the fee is going to be before you go over your withdrawal limit.

  • Protection and Safety

You don’t want to keep your money stashed around your house because it’s definitely not safe there. What’s great is that when you open an account with a bank or credit union it’s likely going to be covered by the FDIC. That’s the Federal Deposit Insurance Corporation and they make these institutions guarantee your money up to $250,000 because they’re taking on a lot of your personal information. You don’t have to do anything to get this coverage and you don’t have to pay for it either. It’s just there, waiting for you.

Bottom Line

If you’re debating between a money market account and a savings account keep in mind that you don’t have to choose one or the other. You can get some great benefits no matter which way you go. If you want to make sure your money is more accessible but still saved you might want to go with a savings account. They don’t give you a lot of access but they’re available.

If you want to have more access to your account but you don’t want to have it freely available like with a checking account then a money market account might be the better way to go. This type of account gives you the ability to write checks occasionally without having to worry about transferring money, but it’s not quite as free and easy as a checking.

Just remember, you can have more than one and you could have both of these types of accounts.