Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
On the surface money market and savings accounts have a lot in common, but there are several key points where they differ. Taking into account interest rates, minimum requirement balances, and your overall financial goals will help you choose which account type is right for you.
What is a money market account?
A money market account is an interest-bearing deposit account offered by a bank or credit union. Like checking accounts and savings accounts, money market accounts at accredited institutions are FDIC- or NCUA-insured.
The Federal Reserve’s Regulation D limits both savings account and money market account holders to six “convenient” transactions per month. For Reg D, a convenient transaction is one made by check, debit card, or electronic transfer. Withdrawals at ATMs, in-person transactions at a branch and telephone checks are not restricted.
Lastly, it’s important not to confuse these accounts with money market funds, which are a type of fixed-income mutual fund. Money market accounts hold deposits that are very low risk, while money market funds are investment products that come with a higher level of risk.
What is a savings account?
A savings account is also an interest-bearing deposit account where you stash money for longer-term goals. Savings accounts are also covered by Reg D, with only six convenient withdrawals allowed per month. They’re also FDIC or NCUA-insured. What differentiates savings accounts from money market accounts are the features available with each, and what financial situations they may be better suited to improve.
How do money market and savings accounts compare?
According to DepositAccounts founder Ken Tumin, nothing formally differentiates savings and money market accounts in terms of how they’re regulated or how the government defines them. The primary difference between money market and savings accounts, according to Tumin, is check writing. Money market accounts will typically offer the ability to write checks on a limited basis, while most savings accounts lack that ability.
The other feature that differentiates money market accounts from savings accounts is the minimum deposit requirement. Generally speaking, money market accounts require higher minimum balances to earn the highest APY available from the account. Minimum balance requirements are usually much lower with savings accounts.
Tumin emphasized that the specific features offered with either account type differ depending on your bank or credit union — especially when choosing between a traditional bank or credit union and an online option.
|Money market accounts||Savings accounts|
|Interest rates||Generally higher than savings accounts||Generally lower than money market accounts|
|Minimum balance requirements||Usually higher than savings accounts||Most often lower than money market accounts|
|Debit card||Nearly always included||Only rarely offered|
|Check-writing capabilities||Almost always offered||Seldom included|
|Withdrawals||Limited by the Federal Reserve’s Reg D||Limited by the Federal Reserve’s Reg D|
Money market vs. savings: Interest rates
What type of account has the highest interest rate? Money market accounts usually tier their interest rates, meaning consumers can earn more money if they keep a higher balance in their account. Savings accounts, meanwhile, tend to offer the same interest rate regardless of balance.
Money market accounts tend to offer higher APYs than savings accounts. The average money market rate was 0.37% as of February 2020. The average savings account rate, meanwhile, was around 0.27% as of February 2020.
Money market vs. savings: Accessibility
Monthly withdrawals from both money market accounts and savings accounts are limited by the Federal Reserve’s Reg D. The difference lies in the withdrawal types you can make. Money market accounts typically offer check-writing capabilities, while savings accounts usually don’t. Remember, checks are still restricted by that six-per-month limit, but it is one feature that most savings accounts don’t allow. Money market accounts almost always come with debit cards, while few savings accounts offer debit cards.
Money market vs. savings: Fees
In terms of fees, there are plenty of no-fee savings accounts available but also many that will charge you for overdrafts, having non-sufficient funds or receiving paper statements — plus a possible $5 to $10 fee for withdrawing beyond your six-per-month limit. Money market accounts may charge similar fees. Money market accounts also sometimes charge monthly service fees, but you can often avoid them by maintaining a minimum balance.
Money market account pros and cons
|Money market account pros||Money market account cons|
Savings account pros and cons
|Savings account pros||Savings account cons|
Money market vs. savings account: Which one is right for you?
If you plan on using your account to make large but infrequent payments — such as paying your taxes — a money market account might be a better option due to its check-writing capabilities. Additionally, if you have a lot of money to save, you could take advantage of a money market account’s tiered interest and get rewarded for your high balance.
But why would you put money into a savings account? These accounts could be better for those with less money to save, as balance minimums are typically low. The downside is that your money might not gain interest at a very high rate.
Ken Tumin emphasized that none of these differences are set in stone though, especially as the rise of online banks has added a plethora of savings accounts with new capabilities. Ultimately, you should research multiple accounts of both types before making your final choice.