Money market accounts and savings accounts are both financial products that allow you to save and withdraw money.
- A savings account is a financial product that allows you to deposit money and earn interest. They don’t come with checks or the ability to schedule bill payments.
- A money market account is very similar to a savings account, but offers more transactional features. Money market accounts allow you to deposit money and earn interest, but they also usually allow a limited number of checks and bill payments each month.
|Savings account||Money market account|
|Unlimited withdrawals *||No||No|
|Automated deposits possible||Yes||Yes|
|FDIC / NCUA Insurance||Yes||Yes|
* The Federal Reserve has issued an “Interim Final Rule” to suspend Regulation D due to economic conditions associated with the pandemic. This gave banks the ability to allow customers to make more than the standard six maximum withdrawals and transfers each month. Check with your bank to clarify its withdrawal limit rules; many banks have not relaxed their policies despite the Fed’s decision.
What is a savings account?
As an interest-bearing deposit account, a savings account is similar to a money market account in that deposits are not limited, but withdrawals can be – up to six per month. Savings accounts are a great place to save your money while still having it available if you need it later. The average interest rate on savings accounts is only 0.06%, according to Bankrate data in early June, but the best savings accounts pay around 0.6%.
Savings accounts are a safe place to keep your savings. Like a money market account, they are insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Association (NCUA) up to $ 250,000 per account holder.
Pros and Cons of Savings Accounts
|Bearing interest||Nominal interest earned|
|Withdrawals at authorized ATMs||Can be limited to six withdrawals or transfers per month|
|FDIC / NCUA Insurance||Unauthorized bill payments and check writing|
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 certain 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, cannot completely replace a checking account. Federal law limits the number of withdrawals or transfers you can make each month to six. If you want an interest-bearing 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 0.07%, according to Bankrate data from the end of July. However, the best money market accounts pay around 0.6%. You may find that money market accounts require a larger deposit amount to open the account or earn the best APY. If you have a smaller amount to deposit, a savings account may be the best option.
Keep in mind that it is easier to withdraw and spend funds with a money market account than with a savings account. If you want to make spending more difficult, a savings account can help you stay more disciplined than a money market account.
Also note that money market accounts and money market mutual funds are not the same thing.
Pros and Cons of Money Market Accounts
|Bearing interest||Nominal interest earned|
|Authorized bill payments and check writing||Can be limited to six withdrawals or transfers per month|
|Withdrawals at authorized ATMs||May require a large minimum deposit|
|FDIC / NCUA Insurance|
How to choose between a monetary 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 might have a savings account where you deposit money for an upcoming trip or a down payment on a house and money market account where you keep money so you can write checks.
However, if you want to choose 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 funds. You might be interested in growing an emergency fund, saving for a down payment for a house, or paying for a vacation. Once you know where your money is going, take a look at the pros and cons of each product to determine which one is right for you. A savings account may be all you need if you are just saving some money for later use. Money market accounts are also good options for saving money for specific purposes. However, since they allow check writing and bill payments, you can think of this account as a transactional account.
Compare fees and rates
See a bank or credit union’s fee schedule and rate information to learn more about an account. You can find competitive interest rates on 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 will be able to deposit enough money to open the account and maintain enough money to keep the account open.
Whether you are opening a savings account or a money market account, you will need some basic information. For your application, you will need a government issued ID, Social Security number, date of birth, address, and contact details.
You may need to make a minimum deposit to open the savings account or money market account. You will need the routing number and bank account number of the account you will be sending funds from.
Watch the fees
Some savings and money market accounts may charge you a monthly account 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 meet account requirements to avoid monthly fees that can reduce your savings growth. Or even better, find a bank that doesn’t charge a monthly fee.
Most savings and money market accounts are limited to six transfers or withdrawals per month, although your bank may have lifted this restriction after the Federal Reserve decided. Remember to check with your bank to confirm an account’s withdrawal limits so that you do not exceed them, or you may be charged an excess withdrawal fee.