Money Market vs. Savings Accounts: Which is Right for You?

When it comes to stashing your cash, you’ve got options — in fact, so many that it may feel overwhelming to decide which is the right one for you. 

While a regular checking account is a good choice for almost every consumer’s day-to-day spending needs, when it comes to savings, both money market accounts and savings accounts offer some benefits… and some drawbacks, too.

Ready to learn more? Let’s dive in.

What is a savings account?

We’ll start with the product that’s probably more familiar to most folks: savings accounts. A savings account is a type of deposit account that’s designed for keeping and growing your money over the longer term, rather than making regular withdrawals. 

For this reason, most savings accounts don’t come with a linked debit card, and are usually subject to a six-withdrawal-per-month limitation1. (This restriction was suspended in 2020 in response to the economic tumult caused by the COVID-19 pandemic, but may be reinstated once things go back to normal.) Savings accounts also usually offer interest growth to the account-holder, though the rate is usually quite low: the national average at the time of this writing is 0.06% APY, per the FDIC.

Additionally, there are a number of different kinds of savings accounts, such as high-yield savings accounts, traditional savings accounts, and Certificates of Deposit (CDs). 

While money market accounts aren’t exactly a type of savings account, they do have many commonalities with savings accounts, and many people use them to save their funds for the future.

What is a money market account?

Money market accounts are kind of like a hybrid between checking accounts and savings accounts: they earn interest, and relatively high interest at that, but may still offer check-writing privileges or a debit card that allows you to make ATM withdrawals. That said, money market accounts may subject to a six-withdrawal-per-month limitation1.

While money market accounts may offer higher interest rates than even high-yield savings accounts, they may also come with higher minimum balance requirements, monthly fees, or other caveats to watch out for when signing up. 

Additionally, the interest rates on money market accounts may be variable, shifting based on inflation rates and other market factors. Money market deposit accounts may be preferable than the stock market, but your exact earnings may still vary.

Important note: Don’t confuse money market accounts, or money market deposit accounts, with money market mutual funds, which are a type of investment and are thus fully vulnerable to the whims of the market. A money market deposit account may be FDIC insured2, or insured by the NCUA3 if you’re working with a credit union.

Money Market Accounts vs. Savings Accounts

So, how do you decide if a money market account or savings account is better for your needs? Both of these bank accounts have benefits and drawbacks, and it’s possible you might want one of each. Here are the main differences.

  • Money market accounts tend to offer more flexibility and ease of spending than savings accounts. Unlike savings accounts, they may come with attached debit cards or checkbooks, even though the number of withdrawals you can make per month may still be limited.
  • Money market accounts also tend to offer higher interest rates than regular savings accounts, and sometimes even high-yield savings accounts — though those interest rates might be variable rather than fixed.
  • However, money market accounts also tend to be more expensive to open, and might require higher minimum deposits or monthly account balances than savings accounts do. That said, there are always exceptions to the rule, so make sure to check with the individual bank, financial institution or credit union you’re considering.
  • Both savings and money market accounts are highly liquid accounts, meaning you have relatively easy access to the money. That means either one is a good option for an emergency fund or other cash you want to save, but may still need to tap into on a short-term time frame.

What are my other options for long-term savings goals?

Savings accounts and money market accounts are just the start when it comes to options for saving for the future. Investing in stocks, bonds, and mutual funds through a brokerage account may be another option but it may come at a higher risk than savings or money market deposit accounts.

If you’re looking for another savings option, you might also consider a Certificate of Deposit, or CD. CDs work by offering a certain amount of interest growth in exchange for locking up your money with the bank for a set period of time, from a few months up to five years or longer. Generally, the longer the term of the CD, the more interest you’ll get back… but again, these savings vehicles tend to have fairly low rewards, and you may also pay additional fees or penalities if you need to make an early withdrawal.

Still have questions — or ready to open an account of your own? We’re happy to help answer your questions! Our team is available during regular customer service hours by phone, or you can write us an email any time.

Footnotes:

1There may be a $10.00 excess transaction fee for every transaction over six for pre-authorized withdrawals, automatic or telephonic transfers, checks, drafts, and debit card or similar transactions from your account per account statement cycle.

2FDIC insurance is applicable to eligible deposit accounts and up to the maximum allowed by law . Learn more at https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/index.html.

3Learn more about NCUA insured accounts, which are applicable to eligible accounts and up to the maximum allowed. https://www.mycreditunion.gov/share-insurance

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