When it comes to saving money, there are a wide array of options to choose from — like keeping your money in a bank account or investing it in stocks, mutual funds or ETFs.
Two of the simplest and most common choices for stowing away your hard-earned cash are savings accounts and money market accounts (MMAs).
Keep reading for a side-by-side comparison of these two investment tools.
Money market vs. savings account — an overview
While money market accounts and savings accounts are distinct financial instruments, they also share many common traits.
Let’s take a look.
Similarities and differences
Starting with the similarities, both money market and savings accounts are depository bank (or credit union) accounts that offer returns on investment through variable interest rates.
Both types of accounts can be opened online or in person at your local financial institution.
Both accounts allow you to make as many deposits as you want each month, and deposits made to both are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) for banks or by the National Credit Union Association (NCUA) for credit unions. The number of withdrawals from both types of accounts was previously limited to six a month by the Federal Reserve’s Regulation D April 2020. Now, customers can make more than six withdrawals per month.
The main difference between money market and savings accounts comes down to how you can access your funds.
Money market accounts allow access to your funds via a debit card or checkbook.
With a savings account, you must either complete a withdrawal form and receive a check or cash, or make an electronic transfer to your checking account through the bank’s online portal.
Choosing the best one
Deciding which account is best for you depends on your financial situation.
If you need easy access to your savings, a money market account might be best because it offers debit and checkbook services.
On the other hand, if you prefer to limit your transactions to build your savings, a traditional savings account might be ideal.
Tips to consider
Before choosing between a money market and savings account, it’s vital to have a clear financial plan and solid budget to help you make a decision that aligns with your financial objectives.
An easily accessible money market account might not be the best option for you if you tend to overspend. You can look at online high-yield savings accounts to find the highest interest rate.
What is a money market account?
Money market accounts combine some features of savings accounts with checking accounts.
Like a savings account, you earn interest on your balance, and like a checking account, you can write checks or use a debit card to withdraw cash.
Pros and cons
- Interest: Money market accounts earn better interest rates than savings accounts, making them a good choice to grow your savings.
- Security: Like savings and checking accounts, money market accounts are FDIC-insured.
- Liquidity: An advantage of money market accounts over savings accounts is the ease of access to your funds through debit cards, check-writing, and ATM withdrawals.
- Large minimum balance: Money market accounts can sometimes require a significant minimum deposit to get the best possible rate. They also might maintain a high minimum account balance beyond the initial deposit.
- Transaction limits: Like savings accounts, money market accounts usually impose a limit on the number of transactions you can make every month.
When should you use a money market account?
Because of their stability and better interest rates, money market accounts are better suited to medium-term goals that you expect to achieve in the next five to 10 years, like making a down payment on a house or saving for your child’s college tuition.
What is a savings account?
A savings account is a depository account that pays interest on deposits.
However, the interest rates offered by most savings accounts tend to be quite low because depositors can withdraw their funds at any time.
You can open savings accounts in person or online.
Pros and cons
- Security: Like money market accounts, savings accounts are insured by the FDIC or NCUA for balances up to $250,000.
- Liquidity: While access to your funds varies from one financial institution to another, savings accounts generally offer high liquidity since you can withdraw or transfer your funds at any time.
- No minimum balance: A significant advantage of savings accounts over money market accounts is the lack of a minimum balance. They’re a good option for those on a tighter budget.
- Interest: Interest rates on savings accounts are typically quite a bit lower than those offered by money market accounts.
When should you use a savings account?
Since they offer lower interest rates, savings accounts are best for short-term financial goals you expect to achieve in the next few years.
They’re also ideal for emergency funds since their limited access means you’re less likely to spend the money you deposit.
Getting the most out of both accounts
If you’re struggling to choose, you might want to consider opening multiple accounts.
When using both types of accounts, assigning a specific purpose to each one is essential.
You could keep a portion of your savings in a regular savings account for an emergency fund and put the rest in a money market account for a longer-term goal, like saving to buy a car or house.
FAQs about money market and savings accounts
Do money market and savings accounts earn different interest rates?
Yes. While neither account earns as much as a certificate of deposit (CD), money market accounts tend to earn significantly more than savings accounts — up to twice as much.
How do you know when one is the better choice?
Both are excellent options for earning a bit of interest on funds that you want to keep close at hand.
For those wanting easier access to their savings and higher interest rates, a money market account may be better.
On the other hand, savings accounts are ideal for those beginning to save because they require low or no minimum opening balance.
Are there alternatives to money market and savings accounts?
One popular alternative is the money market fund (MMF). MMFs are a type of mutual fund that invests in short-term debt like CDs and Treasury notes.
Another increasingly popular option is a high-interest checking account. These accounts offer the flexibility of a checking account combined with the high-interest rate of a money market account.
How do money market accounts differ from certificates of deposit?
Money market accounts are open-ended, variable-rate deposit accounts, meaning you retain access to your funds after you deposit them.
CDs, on the other hand, are closed-ended and fixed-rate. That means you can’t access your funds for the specified period — anywhere from one month to 10 years.
The bottom line
Money market accounts and savings accounts are both excellent options for those looking to set aside some money for a given period while also earning interest.
But for those looking for a modern alternative to these financial tools, there’s always PointCard™.
A transparent, easy-to-use alternative payment card, PointCard allows you to spend your own money while also receiving exclusive benefits, including unlimited cash-back on all purchases and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases.
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Made to spend.