Money Market Account vs. Savings Account: Which Is Best for You?

At first glance, money market accounts and savings accounts may look quite similar: Both earn interest and allow you to access your money as needed. But these accounts are not exactly the same.

A money market account can offer higher interest rates but may require a much larger minimum opening deposit than a savings account. Here’s what else you should know when choosing between these accounts.

What is a savings account?

A savings account is an interest-bearing deposit account where you stash money for longer-term goals. A savings account can be held at a bank, credit union or other financial institution.

Savings accounts typically offer variable interest rates that can differ by type of account and bank. Interest can be compounded daily, monthly or annually, depending on your financial institution. Compound interest is the interest that builds on your principal balance and any accrued interest.

Note that rates on savings accounts are often low unless you opt for a high-yield savings account, which you’ll find at many online banks and credit unions. They’ll typically offer higher rates than brick-and-mortar banks because they have lower overhead costs.

For reference, the national average rate for savings accounts as of April 15, 2024, was 0.46%, according to the Federal Deposit Insurance Corp. (FDIC).

A savings account is usually a safe place to keep your money, as long as your account is federally insured by the FDIC or the National Credit Union Administration (NCUA).

What are pros and cons of savings accounts?

A savings account can be a useful tool, but your circumstances and needs will affect whether it’s the right option for you. Here are some pros and cons of savings accounts to consider:

Pros:

• Easily access funds when you need them.
• Open your account with little or no money.
• Pay low or no fees.

Cons:

• Monthly limits may apply to withdrawals or transfers.
• Rates vary and may be low.
• Checks and a debit card generally don’t come with an account.

What is a money market account?

A money market account is another type of interest-bearing deposit account, but it combines features of a checking account and a savings account. Money market accounts can have higher opening and minimum balance requirements than saving accounts but pay higher interest rates.

The national average rate for money market accounts was 0.66% as of April 15, 2024, according to the FDIC.

Rates may be tiered, offering a higher return for a higher balance. Also, you may have to maintain a certain balance to avoid a maintenance fee. The minimum balance depends on your bank but could be at least $2,500.

Money market accounts include checks and a debit card with ATM access. But you’ll usually have limits on check, debit card or electronic transfer transactions.

A money market account is also backed like a savings account up to at least $250,000 per deposit, per federally insured institution, per ownership category.

What are pros and cons of money market accounts?

The higher rates associated with money market accounts can be attractive. But note the pros and cons before opening an account because a money market account may not always be your best option.

Pros:

• Rates are generally higher than traditional savings accounts.
• Funds are accessible without penalty, unlike keeping money in certificates of deposit (CDs) or retirement accounts.
• Accounts often come with check-writing privileges as well as a debit card.
• Low-risk investments are covered by the FDIC.

Cons:

• Accounts may require a high initial deposit and minimum balance. Failure to maintain a minimum balance could lead to fees.
• Monthly limits may be placed on certain types of transactions.
• Variable rates mean your rate can fluctuate, and predicting changes is impossible.
• Growth opportunities may be better elsewhere.

Money market account vs. savings account

Depending on your circumstances, you may want to go with a money market account over a savings account or vice versa. The key is understanding your needs and each product’s features.

A money market account could make sense, for example, if you want check-writing privileges and you can meet balance requirements. A savings account could be a better choice when you don’t need to access your money often and don’t require checks or a debit card. Of course, you can always open both types of accounts to suit different needs.

Here’s a closer look at money market accounts and savings accounts to help you decide.

How to choose between a money market account and a savings account

If you’re trying to weigh a money market account versus a savings account, consider factors such as:

• APYs
• Access to funds
• Your financial goals
• Account requirements
• Fees

To help you make this decision, here are three key questions to ask yourself:

Do you need easy access to your money?

A money market account and a savings account allow you to access your money, but it can be a little harder to do with a savings account. That’s because savings accounts usually don’t come with checks or debit cards to let you make cash withdrawals or purchases.

If you want to get to your money easily and account minimums aren’t an issue, then a money market account could be a better choice. But if you need to grow an emergency fund and want to make your cash difficult to access, then a savings account is the way to go.

Keep in mind that both types of accounts may have transaction limits.

How will you use the money?

A savings account is suited for short-term financial goals you aim to achieve over several years. Those goals typically involve smaller amounts of money. Examples might include saving to pay for a vacation or building an emergency fund.

A money market account can be ideal for medium-term goals that could take up to a decade to complete, such as saving for a down payment on a home. Money market accounts typically earn higher rates than savings accounts to help you reach your goals faster.

Keep in mind that money market accounts often have minimum balance requirements to open the account and to avoid fees.

What are the rates and fees?

Regardless of what account type you choose, consider rates and fees.

Money market accounts generally have higher rates than savings accounts. Some money market accounts offer tiered rates that increase along with your balance. But you’ll need to make sure you can meet any balance requirements to avoid fees.

If you don’t want to worry about maintaining a minimum account balance or paying fees, then you will want to choose a savings account. You may also want to select an online bank because they often have fewer fees than a brick-and-mortar bank.

Remember, you can always have a money market account and a savings account if both offer value for different goals.

What are alternatives to money market accounts and savings accounts?

If you decide that neither option is right for you, you may want to consider these alternatives:

High-yield savings accounts. Returns are much higher on these accounts than on traditional savings accounts — as much as 10 times higher in some cases. You may need to make a high minimum initial deposit and maintain a minimum balance to avoid money service charges.

CDs. You agree to deposit a lump sum of money and leave it for a period of time, or term, in exchange for a fixed interest rate. Choose from terms of a few months up to at least five years. Usually, the longer the term, the higher the rate. However, you can pay a penalty for withdrawing your money before the end of the term.

Treasury savings bonds. You can choose from Series EE and Series I bonds. As of this writing, the rate for EE bonds is 2.70%, and the rate stays the same for 20 years. The rate on I bonds is 5.27%, and that rate stays the same for six months. Bonds can be cashed after 12 months.