Money market accounts and savings accounts are both financial products that allow you to save and withdraw cash. These types of deposit accounts provide easy access to your funds and may pay competitive yields, both of which can be important during periods of economic recession and inflation.
While savings accounts and money market accounts share some similar features, there are key differences in how you’re able to use them. Understanding the rules of each can help you decide which one is best for you.
Key statistics on savings accounts and money market accounts:
- The median balance for deposit accounts such as savings accounts and money market accounts is $5,300, according to the Federal Reserve’s Survey of Consumer Finances (SCF).
- A total of 98 percent of U.S. households have a transaction account such as a savings account or money market account, based on SCF data.
- The national average annual percentage yield (APY) for both money markets and savings accounts is 0.13 percent in August 2022. However, rates up to 15 times higher can be found at some online banks and credit unions.
What is a savings account?
As an interest-earning deposit account, a savings account is similar to a money market account in that deposits aren’t limited but withdrawals may be — up to six per month. Savings accounts are a good place to save your money while still having it accessible if you need it later. The average interest rate on savings accounts is only 0.13 percent, according to Bankrate data as of August 2022, but the best savings accounts pay around 2 percent.
Savings accounts are a safe place to keep your savings. Like a money market account, they are insured through the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Association (NCUA) up to $250,000 per account holder.
Pros and cons of savings accounts
|Interest-bearing||Nominal interest earned|
|ATM withdrawals allowed||May be limited to six withdrawals or transfers per month|
|FDIC/NCUA-insured||Bill payments and check-writing not allowed|
What is a money market account?
A money market account takes what works from a savings account, such as the ability to earn interest, and combines it with some features of a checking account, such as the ability to pay bills, make withdrawals and write checks. You can make unlimited deposits into your money market and even schedule automatic deposits.
A money market account, however, can’t fully replace a checking account. Federal law limits the number of withdrawals or transfers you may make each month to six. If you would like an interest-earning account that allows you to occasionally pay a bill or two, a money market account is a good option.
The average interest rate on money market accounts is 0.13 percent, according to Bankrate data from August 2022. However, like savings accounts, the best money market accounts currently pay around 2 percent. You may find that money market accounts require a bigger deposit amount in order to open the account or earn the top APY. If you have a smaller amount to deposit, a savings account may be the better option.
Keep in mind that withdrawing and spending the funds is often easier with a money market account than with a savings account, since they may allow you to write checks and make debit card purchases. If you want to make it more difficult to spend the money, a savings account may help you remain more disciplined than a money market account.
Also note that money market accounts and money market funds are not the same thing.
Pros and cons of money market accounts
|Interest-bearing||Nominal interest earned|
|Bill payments and check-writing allowed||May be limited to six withdrawals or transfers per month|
|ATM withdrawals allowed||May require a sizable minimum deposit|
Comparing savings accounts and money market accounts
Both savings accounts and money market accounts allow you to deposit money and earn interest. Unlike savings accounts, however, money market accounts often come with transactional features — such as the ability to write a limited number of checks and make bill payments each month. Some money market accounts also come with a debit card.
The following chart breaks down which features may be provided with savings accounts and money market accounts:
|Savings account||Money market account|
|Automated deposits possible||Yes||Yes|
*The Federal Reserve issued an ”interim final rule” to suspend Regulation D due to economic conditions from the pandemic. This gave banks the ability to let customers make more than the standard six maximum withdrawals and transfers each month. Check with your bank to clarify its withdrawal limit rules; many banks didn’t ease their policies despite the Fed ruling.
How to choose between a money market account and a savings account
You don’t have to choose between a money market account and a savings account — you can have both. For example, you could have a savings account where you deposit money for an upcoming trip or a down payment on a house and a money market account where you keep some money so you can write checks.
However, if you want to decide between a money market account and a savings account, here’s what to consider.
Determine what the money is for
First, determine the use of the funds. You may be interested in growing an emergency fund, saving for a down payment for a house or paying for a vacation. Once you know your purpose for the money, review the pros and cons of each product to determine which one is best for you. A savings account may be all you need if you’re simply saving money for later use. Money market accounts are also good options for saving money for specific goals. However, because they allow check-writing and bill payments, you may view this account as more of a transactional account.
Compare fees and rates
Take a look at a bank or credit union’s schedule of fees and rate disclosures to learn more about an account. You can find competitive interest rates on both savings accounts and money market accounts, so be sure to shop around.
Money market accounts may have higher minimum deposit and balance requirements, so consider whether you’ll be able to deposit enough money to open the account and maintain enough money to keep the account open. Money market accounts may also feature tiered rates based on the balance amount, paying higher yields for higher balance thresholds.
Open the account
Whether you’re opening a savings account or money market account, you’ll need some basic information. For your application, you’ll need a government-issued ID, Social Security number, birth date, address and contact information.
You may need to make a minimum deposit to open a savings account or money market account. You will need the routing number and bank account number for the account you will be sending funds from.
Watch for fees
Some savings and money market accounts may charge you a monthly maintenance fee if you don’t meet certain conditions such as having a minimum balance or receiving at least one deposit per month. Make sure you follow an account’s requirements to avoid monthly fees that can cut into growing your savings. Or even better, find a bank that doesn’t charge monthly fees.
Most savings and money market accounts are limited to six transfers or withdrawals per month, though your bank may have lifted this restriction after the Federal Reserve ruling. Remember to check with your bank to confirm an account’s withdrawal limits so you don’t exceed them, or you may be charged excess withdrawal fees.
During times of economic uncertainty, it can be more important than ever to have savings in a liquid account that earns some interest, such as a savings account or a money market account. Factors to consider when choosing between the two can include APY and minimum deposit requirements, as well as the ability to write checks and pay bills.
— Cynthia Paez Bowman wrote a previous version of this story.