What Is the Difference Between Money Market & Savings Accounts?
Understand the core distinctions between money market and savings accounts to make an informed choice for your liquid funds.
Savings accounts and money market accounts are common options for managing liquid assets. Both are deposit accounts designed to help grow funds, but they possess distinct features. This article clarifies the differences between these account types, providing insights into their characteristics and typical uses.
Understanding Savings Accounts
A savings account functions as a fundamental deposit account for accumulating funds. These accounts offer a secure place to store money, earning interest on the deposited balance. While interest rates vary, traditional savings accounts are often modest, though high-yield options can offer significantly higher rates.
Funds are highly liquid, meaning they are easily accessible. These accounts typically have transaction limitations and are insured by the Federal Deposit Insurance Corporation (FDIC). Their main purpose is to serve as a safe repository for emergency funds or savings for specific future goals, keeping these funds separate from daily spending. Some institutions may require a minimal opening deposit or a certain balance to avoid monthly fees, but these requirements are generally less stringent compared to other account types.
Understanding Money Market Accounts
A money market account (MMA) is a hybrid deposit account combining characteristics of both savings and checking accounts. These accounts offer higher interest rates than traditional savings accounts, with rates often tiered, meaning larger balances may earn a greater annual percentage yield (APY). MMAs provide check-writing privileges and debit card access, offering more transactional flexibility.
MMAs are also subject to transaction limitations and are insured by the FDIC. Institutions often require higher minimum balances to open and maintain MMAs compared to savings accounts. Fees may apply if the balance falls below a specified threshold. MMAs are well-suited for individuals seeking to earn more interest on their savings while retaining convenient access for occasional transactions.
Comparing Account Features
Money market accounts generally offer more competitive interest rates than traditional savings accounts, often with tiered rates that reward higher balances. While both account types allow for easy access to funds, money market accounts typically provide check-writing capabilities and debit card access, features not commonly found with savings accounts.
Both account types are subject to transaction limitations, commonly restricting withdrawals and transfers to around six per month. Money market accounts usually necessitate higher minimum balances to open and maintain, with common minimums ranging from hundreds to thousands of dollars, and they may impose fees if balances drop below these requirements. In contrast, savings accounts often have lower or no minimum balance requirements. Both savings and money market accounts benefit from Federal Deposit Insurance Corporation (FDIC) insurance, protecting deposits up to $250,000 per depositor, per insured bank, for each ownership category.