Saving money is almost always a smart move, and both savings accounts and money market accounts are strong options to stash your cash. Both money market accounts and high-yield savings accounts tend to offer APYs significantly above what you’ll find with traditional savings accounts.
If you’re simply looking for a place to park your funds, a savings account might be the answer. But if you want the flexibility to occasionally write checks from an account—or maybe even access your funds by debit card—an MMA is probably more in line with your needs.
Each account type carries benefits and potential drawbacks. Here’s what you need to know about savings accounts and MMAs to help you decide which is best to make your money work for you.
Money market vs. savings account
Both money market and savings accounts are deposit accounts that are typically FDIC-insured and pay savers interest on their cash. The most significant differentiators between the two are the account features and opening deposit requirements.
Traditional savings accounts give you a safe place to keep your cash and offer low or no account minimums. However, interest rates are typically lower than other types of savings products, and you’ll have limited ways to access your funds.
Money market accounts have all the features of savings accounts but dialed up a notch. In exchange for a higher minimum deposit requirement, you’ll generally score a higher interest rate—along with extra features like a debit card and check-writing privileges for your account.
| Money market accounts | Savings accounts |
|---|---|
| Banks and credit unions insured by the FDIC or NCUA, respectively | Banks and credit unions insured by FDIC or NCUA, respectively |
| Higher account minimums | Low to no account minimums |
| Higher interest rates | Lower interest rates |
| Interest rates are variable | Interest rates are variable |
| Access to the account via debit card and checks | Access to the account via ATM, electronic transfers and bank drafts |
| Can be linked to other account types | Can be linked to other account types |
| May have monthly transaction limits | May have monthly transaction limits |
| Banks and credit unions insured by the FDIC or NCUA, respectively | |
|---|---|
| Savings accounts | Banks and credit unions insured by FDIC or NCUA, respectively |
| Higher account minimums | |
| Savings accounts | Low to no account minimums |
| Higher interest rates | |
| Savings accounts | Lower interest rates |
| Interest rates are variable | |
| Savings accounts | Interest rates are variable |
| Access to the account via debit card and checks | |
| Savings accounts | Access to the account via ATM, electronic transfers and bank drafts |
| Can be linked to other account types | |
| Savings accounts | Can be linked to other account types |
| May have monthly transaction limits | |
| Savings accounts | May have monthly transaction limits |
It’s important to note that while traditional savings accounts typically come with low APYs (meaning the annual percentage yield) a high-yield savings account can offer a much better return. These are often available from online banks as opposed to brick-and-mortar institutions.
Now that you know the basics, let’s take a deeper dive on features and how each account can help you achieve different financial goals.
What is a money market account?
Money market accounts combine the best features of savings and checking accounts, rolling great interest rates and flexible cash access into a single account.
But while money market accounts typically have higher opening deposit requirements than everyday savings accounts, they reward you with higher interest rates. Then when you need to access your savings, many accounts offer added features like debit cards and checks to make withdrawals a breeze.
And you won’t have to look far to find a money market account. Banks and credit unions offer them across the country. But no matter where you open an account, your money is insured up to $250,000 per depositor, per institution, and account ownership category. Bank insurance is through the FDIC, while credit union insurance is through the NCUA for these amounts.
Carina Berlin, a certified financial planner with Kayne Anderson Rudnick in Santa Monica, California, says that beyond their debit and check privileges, money market accounts can make sense for other reasons. For example, she says that savers who keep a large cash balance can benefit from a money market account’s higher yields.
But if you’re just starting your savings journey, you may still be able to enjoy the perks these accounts offer. While many banks still have hefty minimum balance requirements and charge fees for falling below them, other banks now offer money market accounts with $0 minimums—making money markets more accessible to more savers than ever.
How money market accounts work
When you open a money market account, you’ll earn compound interest on your deposit, similar to a savings deposit. But unlike savings accounts, money market accounts are designed to help you spend as easily as you save.
While you’ll want to keep a checking account for everyday expenses, many money market accounts let you use a debit card or checks to draw on your savings. But there’s a potential catch: Your account could have monthly limits on the number of withdrawals you can make.
The Federal Reserve used to limit the number of withdrawals you could make from savings and money market accounts to six per month through a provision called Regulation D. But the Fed lifted those withdrawal limits in 2020 during the pandemic. Some banks and credit unions may have reestablished withdrawal limits, so make sure you’re clear on any transaction limits for any account you’re considering.
Learn more: How the Federal Reserve can impact your savings account’s interest rate.
Pros and cons of money market accounts
A money market account has its benefits over a traditional savings account but it may not be a fit for all savers.
Pros
- Check-writing and/or debit card capabilities
- Higher APYs than traditional savings accounts
- Your money is safe if it’s with an FDIC- or NCUA-insured institution
Cons
- May incur fees if you dip below the minimum balance requirement
- Typical have higher minimum balance requirements than savings accounts
- Potential cap on the number of monthly withdrawals
Pros and cons of savings accounts
Savings accounts help you store your cash in a safe location while earning interest. However, they do have their limits—especially when it comes to yield and ways to access your cash. The exception to this are HYSAs which can earn at a rate that outpaces MMAs.
Pros
- Earns more interest than checking account
- Can access your savings as often as you like via an ATM ACH transfer or a teller
- FDIC- or NCUA-insured
Cons
- Fewer ways to access savings than money market accounts
- Traditional savings accounts have a lower yield than money market accounts
- May have monthly withdrawal limits
If you want to avoid the temptation to tap your savings, Spencer Betts, a certified financial planner with Bickling Financial Services in Lexington, Massachusetts, says opening a savings account away from your home financial institution can be a better choice.
“Now, there’s an active thought process to take money out of your savings account,” he says. “A savings account held away like that can help you be more mindful when tapping funds.”
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How to choose between a savings account and a money market account
While money market and savings accounts can both help your savings grow through compound interest, choosing one over the other may not be necessary. There’s no reason you can’t have both types of accounts to help you meet your goals. Consider pairing a HYSA with a MMA to get the best of both worlds and earn strong interest rates on your savings. If that sounds like one too many accounts for you to manage, here’s what to consider to help you narrow down your choice to just one account type.
A money market account might be the best choice if…
- Your top priority is yield. Higher APYs can make money markets tough to beat.
- You have long-term savings goals. The higher yield over a longer time can boost your savings.
- You value flexibility. Debit and check options let you make a purchase, online or in-person, without waiting for funds to transfer between accounts.
A savings account might be your best choice if…
- You priority is liquidity. Having your savings linked to your primary checking account can offer reassurance that your savings will be easy to access.
- You’re building your emergency fund. Linking your checking and savings can help pay for emergencies when they happen, not days later.
- You don’t need the added perks. A traditional savings account is great for someone who doesn’t need or want debit and check access to their savings.
You might want a money market and a savings account if…
- You have an emergency fund but need to save for a longer-term goal. You may want to keep your emergency fund in a savings account but use a money market account and its higher yield to save for a big purchase like a down payment on a home.
- You don’t want to change banks. You can keep your savings or money market account through your primary bank but open the other type of account at a bank offering higher yields.
- You want the benefits of both types of accounts. Unless two types of savings accounts feel like more than you can manage, there’s no reason you can’t have both accounts.
The takeaway
Both savings and money market accounts offer attractive yields and benefits for savers. You can start with the savings solution that works for you today—and you can always make a change down the line if your needs or preferences change.
And if you’re stressed about choosing the right type of account, Arijit Roy, head of consumer segment and solutions at U.S. Bank at the time of interview, says not to worry. “There’s no one size fits all, so you do you,” says Roy.