From afar, money market and savings accounts can appear to be the same type of account. Both yield comparable interest rates for limited access to funds. Both are FDIC-insured. But there are a few distinct differences to be aware of when choosing either one.
In this article, you’ll learn about the differences between these two accounts, how to choose one, and how they fit into your savings plan.
If you're curious about finding the best accounts, check out these guides:
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Savings accounts are used to store money that you don’t need access to often. For fewer transactions — then say a checking account — you earn a decent interest rate.
Right now, it isn’t difficult to find savings accounts with APYs of 2.00% and above. Although, not much above.
Savings accounts with high APYs are called high-yield savings accounts.
Unlike a checking account, a savings account has restrictions on the type and number of transactions available. For one, savings accounts don’t allow checkwriting, and they also don’t come with a debit card. To get money into and out of the account, you can transfer it to your checking, use an ATM card, or use a savings withdrawal slip at a local branch.
Savings account ATM cards aren’t debit cards. Meaning, they don’t allow paying bills or using them at stores.
Depending on the bank, many savings accounts don’t require a minimum deposit to open or a minimum daily balance. Because there are no minimums, there aren’t any fees. However, you may find there are minimums to get the highest available interest rates.
While some savings accounts don’t offer checkwriting privileges for lower balances, those same accounts may offer checkwriting privileges for higher balances.
When Is It Best to Use a Savings Account?
If you need a place to save money while earning interest and have no need to write checks from the account, a savings account will work fine. Also, if you are able to find a savings account with an APY higher than any other money market account, that’s another good reason to open a savings account. But a difference of only a few percentage points for the APY isn’t going to matter much.
Money Market Accounts
Like savings accounts, money market accounts (MMAs) are also used for saving. However, given all the features that come with savings accounts and the lack of fees, MMAs may be a hard sell. They used to command high APYs, but now they compete directly with savings account APYs.
MMAs may have fees, which can be waived with high account balances (i.e., thousands of dollars). Fees do vary by bank.
MMAs also require a minimum deposit to open. Usually, the amount is small.
Unlike a savings account, MMAs allow you to write a limited number of checks per cycle (limited to six by federal regulations). They also come with a debit card.
MMAs are not the same as checking accounts. Checking accounts allow you to write more checks and make more use of your debit card. This is not the case with MMAs.
When Is It Best to Use a Money Market Account?
While MMAs do offer slightly higher APYs than savings accounts, that difference is very small. If you want to earn interest and need to periodically write checks from the same account or use a debit card for the same reason, an MMA will work. If you don’t need to write checks, savings accounts will allow you to use an ATM card to withdraw money while earning a high APY.
Where Do These Accounts Fit into Your Savings Plan?
Still having trouble trying to figure out which account might work best for you? You don’t actually have to choose. Having both types of accounts is common.
But most people will find that a savings account works well, especially since it doesn’t require a higher balance, and there’s no risk of incurring fees because of minimum balances.
When thinking about checking, savings, and MMAs, daily life should be done from a checking account. This is because it is made for the volume of transactions needed to pay monthly bills without concern for going over some transaction limit.
Both a savings account and MMA are great for socking away money, whether short-term or long-term.
Some banks offer higher checking account rates when other accounts, such as savings and MMAs, are linked to the checking account. If you already have a savings account and need one more type of account to get a special rate, opening an MMA is a good idea, assuming it is a qualifying account.
Deciding which account to go with might come down to which one offers the highest APY, especially for people with a higher balance that can avoid any MMA fees.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.