Money Market vs Savings Accounts, Which Is Better?
What is the difference between the types of accounts?
Money market accounts
Pros and cons
Money market account pros
- Easy accessibility with check writing. Using your money market account, you can write checks if you need to. So while your money is stashed away, you can easily access it and write checks from the account.
- Competitive, higher interest rates. The APY on money market accounts are typically higher than traditional savings accounts. That means you’ll get the most bang for your buck when you save.
- Safe and less risky. Money market accounts are FDIC-insured which means if your bank flops, you are covered up to $250,000. Plus, this is a pretty safe vehicle to put your money and isn’t as risky as investing.
Money market cons
- Opening deposit. Some money market accounts require an opening deposit. For example, Discover has a minimum deposit of $2,500. There are others, such as Ally Bank, which has no opening deposit. You want to see if there’s an opening deposit as you don’t want that to deter you from starting to save.
- Minimum balance. If you want to score the best APY, you typically need to have a high minimum balance. For example, at the time of writing Discover offers a .40% APY for balances below $100,000 and offers .45% for balances with more than $100,000.
- Monthly fees. Some money market accounts could hit you with a monthly fee if your balance drops below a certain level.
Savings account pros
- No opening deposit. Savings accounts are easily accessible to anyone as many banks have no opening deposit at all. That means you can get started with saving ASAP, regardless of how much money you have on hand.
- Easy access to your cash. It’s easy to set up a savings account with the same bank where you have your checking account or to open a new one. You can put money aside in savings, but it’s also easy to access your cash and transfer to checking when you need it.
- No fees. Many online banks offer savings accounts that have no fees at all. So you don’t have to deal with annoying monthly maintenance fees or overdraft fees.
Money market cons
- Interest rate. Traditional savings account rates are pretty low-interest and hardly earn any interest. If you go with a high-yield savings account, you could earn more, but in general savings accounts have lower interest rates that aren’t competitive with money market accounts.
- Limited access. You can’t access your savings account via a debit card or check and are limited to six withdrawals a month. Currently, that is waived due to the pandemic.
- Monthly fees. Some banks like Bank of America charge a monthly maintenance fee if your balance is lower than a certain amount. For example, you will be charged $8 per month, if you have less than $500 in your savings account.
Which one should you choose?
- What is the purpose of the account?
- What are you saving for?
- Do you plan on spending that money within the next six months?
- Do you have a savings target in mind? (e.g. $10,000)
- Are there any fees?
- What is the Annual Percentage Yield (APY)?
- Is there a minimum deposit?
- Are there minimum balance requirements?
- Is it convenient to access your money?
- Is it convenient to put money into your account?
- Is there a mobile app for Android and iPhone?
Saving for an emergency fund
Saving for a vacation
Saving a down payment
- Annual Percentage Yield (APY)
Best money market accounts
Best savings accounts
The bottom line
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