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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 national average annual percentage yield (APY) for savings accounts as of Nov. 30, 2023 is 0.61 percent. However, rates close to 10 times higher can be found at some online banks and credit unions.
- The national average yield for money market accounts is 0.47 percent for Nov. 30, 2023. Rates more than 10 times higher can be found, however, by shopping around.
- Nearly a quarter of Americans believed earning more money from savings and investments would help their financial situation in 2023, a Bankrate survey found.
- The median balance for deposit accounts such as savings accounts and money market accounts is $5,300.
- A total of 98 percent of U.S. households have a transaction account such as a savings account or money market account.
What is a savings account?
A savings account is a financial product at a bank or other financial institution that allows you to deposit money, and it typically earns a modest amount of interest. The national average savings account interest rate is just 0.61 percent, according to Bankrate data as of Nov. 30, 2023, but the best savings accounts pay around 4 percent or higher.
A savings account usually doesn’t require a lot of money to open. It’s a good place for an emergency fund, since you can access the money easily at any time to handle unplanned expenses such a car repair, a medical bill or a sudden loss in income.
As an interest-earning deposit account, a savings account is similar to a money market account in that unlimited deposits are allowed but withdrawals may be limited — up to six per month.
Savings accounts are usually a safe place to keep your savings. Like a money market account, they are often 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|
The majority of households (98 percent) have a transactional account such as a savings account. Other transactional accounts are money market accounts, checking accounts and certificates of deposit (CDs).
Thanks to its liquidity, a savings account is a practical place for money set aside for emergencies. However, only 4 in 10 U.S. households said they were able to cover an unexpected $1,000 expense in a recent Bankrate survey. Furthermore, more than three-quarters of adults have not seen an increase in their emergency fund balance in the past year.
In addition to using savings accounts to set aside money for emergencies or other expenses, Americans commonly save for retirement in 401(k) accounts and Individual Retirement Accounts (IRAs). Like with emergency funds, many people report not having enough saved for retirement. In fact, a full 52 percent of American workers feel they’re behind on retirement savings, a Bankrate survey found.
What is a money market account?
A money market account is an interest-bearing account that’s similar to a savings account, but money market accounts commonly allow you to pay bills, use a debit card and write checks.
Like savings accounts, money market accounts feature variable interest rates. Unlike most savings accounts, however, the rates tied to money market accounts are commonly tiered, meaning larger balances earn higher rates.
The national average money market account interest rate is 0.47 percent, according to Bankrate data for Nov. 30, 2023. However, like savings accounts, the best money market accounts currently pay around 4 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.
While it resembles a checking account, a money market can’t fully replace one. Some banks limit the number of withdrawals or transfers you can make each month — often allowing up to six. Ultimately, if you’d like an interest-earning account that allows you to occasionally pay a bill or two, a money market account is a good option.
While withdrawing and spending the funds is often easier with a money market than a savings account, savers who want to make it more difficult to spend their money may be better off with a savings 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|
Reasons people commonly choose to open money a market account include:
- Competitive APYs: Money market accounts may earn competitive APYs, and big savers may appreciate the ability to earn better rates for higher balance tiers.
- Check-writing privileges: It’s common to find money market accounts that allow you to write checks. (Some only permit up to six withdrawals or transfers per statement cycle, which includes checks written.)
- Debit and ATM cards: Money market accounts often allow you to withdraw money from an ATM as well as make debit purchases. (ATM withdrawals don’t count toward withdrawal or transfer limits.)
- Safety: Money market accounts are insured up to $250,000 per depositor, per insured bank and per ownership category when they’re offered by Federal Deposit Insurance Corp. (FDIC) banks and National Credit Union Administration (NCUA) credit unions.
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 removed Regulation D withdrawal limitations in 2020 that banks had been required to impose on savings accounts. This allowed banks 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, and many banks offer both options. For example, you could have a savings account to set aside money for goals such as an upcoming trip or a down payment on a house, as well as a money market account where you keep some money so you can pay bills, use a debit card or 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
Start by determining the use of the funds. You may be interested in growing an emergency fund, saving for a down payment on 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 often allow for check-writing and bill payments, you may view this account as more of a transactional account. This can come in handy for paying an occasional bill or two, but if you’d rather not be tempted to make unnecessary purchases using checks or a debit card, it might be best to stick with a savings 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.
Once you’ve defined your goals and gotten on track with a high-yield savings account or a money market account — or both — it’s a great time to also focus on building up retirement savings or pursuing other investments.
— Cynthia Paez Bowman wrote a previous version of this story.