High-Yield Savings Accounts vs. Money Market Accounts
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Interest rates are rising again, making saving for an emergency fund or something more fun such as a vacation easier without having to tie up your money for months or years.
High-yield savings accounts and money market accounts are two similar types of accounts that can help savers reach their financial goals. Your local bank probably offers regular savings accounts, but the most competitive rates for savings and money market accounts can usually be found at online banks.
Which is best for you? A high-yield savings account or a money market account? They sound the same but have a few differences that can affect which is best for your needs. We’ll review each of these financial products, and will point out features that make each a good or poor choice, depending on your needs.
In this article
What is a high-yield savings account?
High-yield savings accounts can mostly be found at online banks, which save costs by not having traditional brick-and-mortar branches and then passing the savings on to customers.
Still, a traditional savings account at your local bank or credit union is worth checking into, especially if you want in-person customer service. The annual percentage yield (APY) that they pay may come close to what traditional banks pay.
It’s worth noting here the difference between APY and interest rates:
- Interest rate: A percentage that’s paid over one year on the money you’ve deposited. It doesn’t take into account the effects of compounding, which is interest paid on interest.
- Annual percentage yield: Compounding during the year is taken into account, making this the best way to compare yields instead of using interest rates. The higher the APY, the more money you’ll earn in interest.
Both of these should be listed up high on a bank’s website that’s promoting its savings accounts and money market accounts. They’re the key feature consumers look for and allow them to compare apples to apples when shopping for a bank.
Savings accounts usually don’t charge fees, though a minimum balance may be required to avoid a monthly service fee.
A savings account will often pay less than a money market account, though a high-yield savings account may pay the same as a money market account.
High-yield savings accounts are considered short-term investments, meaning your money isn’t tied up for months or years. They offer high liquidity so that you can withdraw your money at any time without paying a penalty. Some accounts, however, may limit withdrawals to around six per month.
They’re a good way to save for a savings goal of a year or less. For places to hold money for a year or longer, you can find higher interest rates through other investments, such as a certificate of deposit (CD), retirement accounts, or buying stocks through a brokerage.
Savings accounts are insured for up to $250,000 per account holder if the bank or credit union fails.
Here are some of the best reasons to have a high-yield savings account:
Higher interest rates
The national average savings account pays 0.42% interest, according to mid-July 2023 data from the Federal Reserve. That’s much better than the 0.07% paid nationally on an interest checking account, but not anywhere close to the 5% interest rates paid at some online savings accounts.
One reason savings accounts pay more than checking accounts is that banks expect people to keep their money in savings accounts longer. Checking accounts are usually used for day-to-day expenses.
In an effort to keep your money in a savings account longer, some banks limit the number of withdrawals you can make in a month.
Easy access to your money
High-yield savings accounts offer easier access to your money than a money market account or certificate of deposit (CD).
Six withdrawals a month is common for a high-yield savings account, and the limit is in place to encourage you to leave your money in the account longer. Exceed the allowed number of transactions and you may be charged fees or have your account downgraded to a regular savings account that pays a lower interest rate.
Still, the monthly withdrawal limits should leave plenty of room for people looking to save for an emergency fund, or even for a short-term goal such as new kitchen appliances.
CDs pay higher rates than savings or money market accounts, but CDs charge a penalty fee if money is withdrawn before the CD matures, which can be anywhere from one month to five years.
Direct deposit
Along with easier access to your money, high-yield savings accounts make depositing money easy too. This feature is offered for just about every type of bank account, but it’s especially useful with a savings account because it can make saving seamless by moving money to a savings account without thinking about it.
Making a conscious decision each month to save $500, for example, can be difficult if you have to log in and transfer the money on the first day of the month. But direct deposits from your checking account or payroll check every two weeks at $250 per deposit can make it a little less painful and you likely won’t think about it.
Before you know it, you’ve saved enough over a year to cover a few months of expenses in an emergency fund, and you can rest a lot easier at night.
Earn Real Money Fast by Filling Out Surveys!
- Sign up for FREE & complete your profile
- Earn points for taking surveys
- Redeem your points for cash or gift cards
- $55k+ Paid to Survey Junkie members daily
- Complete 3+ surveys a day, earn up to $100/mo.
What is a money market account?
Money market accounts, or MMAs, are similar to high-interest savings accounts in that they pay higher interest rates than regular savings accounts and checking accounts. One of the key differences is that money market accounts allow users to get their money by writing checks and using an ATM card. They’re a combination of a savings account and checking account.
These accounts usually pay more than savings accounts, though with interest rates rising lately, money market accounts may pay the same as high-yield savings accounts, or maybe a little more.
It’s a liquid account, though you may be limited to the number of withdrawals you can make in a month. Once you open an MMA account, you can deposit money into it and can transfer money from the MMA to your checking and savings accounts, or any other account you have.
The minimum balance requirements are usually low, such as $100 or less. To earn the highest APY listed, you may need to have a high minimum balance such as $5,000, though some banks may not have a minimum balance requirement.
Accounts are insured for up to $250,000 per account holder.
Don’t confuse money market accounts with money market funds. The latter is a mutual fund that invests in short-term, high-quality securities as a way to generate income with low risk.
Key features of money market accounts
Saving for a goal
A money market account can help you save for a goal, just like a savings account can, and usually money market accounts pay higher interest rates.
The national interest rate for a money market account is 0.63%, compared to 0.42% for a savings account, according to the FDIC. But those rates are for basic accounts. High-yield accounts can be found online for money market accounts, and can exceed those of high-yield savings accounts.
These accounts can help you save for a home purchase, vacation or other goal, such as an emergency fund.
Writing checks and ATMs
Most money market accounts allow account holders to write checks from the account, which gives them instant access to their money and can help them pay their bills while earning a high interest rate. Many accounts also provide ATM cards to withdraw cash.
Both of those services can help when you need money in an emergency, such as a sudden car repair or visit to the emergency room.
You may be limited to how many checks you can write in a month, however. Six is a common number of checks allowed each month.
Most regular checking accounts don’t pay interest, though they usually don’t have limits on how many checks you write each month, and ATM and debit card withdrawals are often unlimited.
Earn Real Money Fast by Filling Out Surveys!
- Sign up for FREE & complete your profile
- Earn points for taking surveys
- Redeem your points for cash or gift cards
- $55k+ Paid to Survey Junkie members daily
- Complete 3+ surveys a day, earn up to $100/mo.
Pros and cons of high-yield savings accounts
Pros
- High interest. High interest rates that are generally higher than regular savings accounts.
- Liquidity. Able to access money in account when you want it, though you may be limited to a certain number of monthly withdrawals.
- Insured. Accounts are generally insured by the Federal Deposit Insurance Corporation (FDIC).
- No fees. Accounts usually don’t have monthly maintenance fees.
- Save for goals. Good way to save for an emergency fund or other goal while earning high interest.
Cons
- No check writing. While you can transfer money to other accounts with a high-yield savings account, you won’t be able to write checks.
- Limited transactions. You may be limited to six or so withdrawals each month.
- Online banking only. Many banks offering high-yield savings accounts are online only, which may be difficult for you if you prefer in-person banking at a bank.
- Customer service may be lacking. Most online banks aim to give customers various ways to contact them, including email, phone, online chats, and text messages. Before choosing a bank, contact them via all of the methods it has and see how fast it responds.
- Variable interest rate. The interest rate can change monthly, which can cause your rate to fall or rise with interest rates in general.
Pros and cons of money market accounts
Pros
- High interest rates and APYs. Money market accounts generally have higher interest rates and higher APYs than regular savings accounts and sometimes higher than high-yield savings accounts.
- Liquidity. Can access money as you need it through several ways, including transfers.
- Check writing and ATMs. Can write checks and use debit cards at ATMs to withdraw cash.
- Insured. Deposit amounts are insured by the FDIC, up to $250,000 per person per account.
- No fees. Most accounts don’t charge fees.
- Save for goals. MMAs are another good way to save for goals and come with check-writing abilities to access your money quickly.
Cons
- Limited transactions. Some accounts may limit how many transactions you can make in a month, and you may be charged fees for exceeding the limit. ATM withdrawals may be excluded from a limit.
- Minimum balance. Most accounts don’t require a minimum balance. However, some may charge a fee if the balance falls below the minimum balance requirement.
- Variable interest rate. This can be good and bad, with the potential of a high interest rate dropping if interest rates overall start to fall.
FAQs of high-yield savings accounts
Can I withdraw money at any time from a high-yield savings account?
Some banks limit monthly withdrawals from high-yield savings accounts, and some don’t. Check with the bank you’re considering on its policy for withdrawals. In general, you should expect a limit on how many times you can withdraw money in a month. If you expect to pull out money often, then you may be better off with a checking account or a money market account where regular withdrawals are expected. Banks pay high interest on high-yield savings accounts with the idea that you’re parking your money there for a long time.
How much is my account insured for?
If your bank or credit union goes out of business, you’re insured for up to $250,000 per person per account. Check with the bank or credit union you’re considering for what its insurance provides in default.
Is a high-yield savings account a good place to save for retirement?
No, unless you’re retiring soon. Retirement accounts are usually invested in stocks and bonds, which usually offer higher returns than savings accounts. High-yield savings accounts and MMAs are meant for short-term savings of a year or so.
FAQs of money market accounts
Are money market accounts taxed?
Yes. All taxable and tax-exempt interest must be reported on a federal income tax return in the year that the interest payment was available to you. Check with an accountant to answer tax questions about your personal financial situation.
Why would I want an MMA over a high-yield savings account?
Money market accounts may offer a higher interest rate than high-yield savings accounts. But more importantly to some people, MMAs combine checking and savings accounts by paying high interest while giving you quick access to your money through check-writing capabilities. You may also get a debit card with an MMA to use at ATMs.
Is an MMA better than a certificate of deposit?
Not if you want a higher interest rate. A certificate of deposit (CD) usually pays a higher interest rate than a money market account. CDs, however, can tie up your money from one month to five years, with higher interest rates for longer deposit terms. You’ll likely be charged a penalty fee if you withdraw money from a CD before it matures.
Earn Real Money Fast by Filling Out Surveys!
- Sign up for FREE & complete your profile
- Earn points for taking surveys
- Redeem your points for cash or gift cards
- $55k+ Paid to Survey Junkie members daily
- Complete 3+ surveys a day, earn up to $100/mo.
The bottom line
High-yield savings accounts and money market accounts are great places to keep some of your cash savings, especially if you’re saving for a goal in the next year or so. Interest rates are often much higher than they are at traditional savings accounts, and you can access your money at any time. If you want to write checks often, a money market account offers check-writing privileges while paying high interest.
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
Share this article
