Most commercial banks and consumer financial institutions such as credit unions offer both Money Market and Savings Accounts.
While both types of accounts work similarly, there are a few key differences worth noting before deciding which type of account to open.
I often get asked which account is better, and my answer is that neither is better than the other.
They both serve different purposes and can help you achieve various financial goals. Both accounts are there to help you save money – so opening at least one of them is a bonus!
A 2016 survey by GoBankingRates showed that just under 35% of Americans have nothing saved while just under 70% have less than $1,000 stashed away in their savings account. This shows how common the problem of saving money truly is. Fortunately, it does not have to be this way.
Saving money is not always easy, and surprises will always crop up. This is why choosing the most efficient way to save money is very important.
This starts with choosing the right type of account, which we will discuss throughout this article by looking at Money Market vs. Savings Accounts.
Money Market vs Savings Account
Let’s start by considering this comparison chart, where we will be looking at the key features of these two accounts side by side.
This will help us to understand the main differences between the two quickly.
We will then look at each type of account in more detail before looking at the best accounts available on the market today.
|Feature||Money Market Account||Savings Account|
|Minimum Balance||Higher minimum balance||Lower or no minimum balance|
|APY||Higher interest rates||Lower interest rates|
|Liquidity||Lower liquidity||Higher liquidity|
Money Market vs Savings: Money Market Accounts
In theory, a Money Market Account is a type of savings account, just with extra features. Think of Money Markets Accounts as hybrid accounts that combine key features of Savings Accounts and Checking Accounts into one account.
Money Market Accounts, also known as MMA for short or Money Market Deposit Accounts (MMDA), are a particular type of bank account used for saving money. Unlike a regular savings account, they typically have a minimum balance requirement. In return, MMAs offer higher interest rates, although this isn’t always the case.
Most MMAs come with a debit card and the ability to issue checks. The FDIC also insures them. Credit Union MMA accounts, on the other hand, are insured by the NCUA. It’s always better to confirm this with your financial institution of choice before opening an account to ensure you’re protected.
One thing to keep in mind is that Money Market Accounts are not Money Market Funds. These two accounts are entirely different from each other. Money Market Funds are there to hold securities rather than savings. These securities can include financial assets such as stocks and bonds. There’s no FDIC Insurance for Money Market Funds, making them much riskier.
Generally, MMAs are very safe and come with very low risk. This makes them an excellent way to build up your savings and have easy access to your money whenever you need it.
Who are Money Market Accounts for?
Because Money Market Accounts generally have a minimum balance requirement, unlike traditional savings accounts, you need to have some money set aside already. So if you’re beginning your savings journey or are in your overdraft, an MMA might not be the right type of account for you.
In most cases, the minimum balance requirement will range from $500 to $25,000, depending on the financial institution you choose. Some accounts will also require you to deposit a minimum amount of money to open the account or to enjoy a more favorable interest rate on your money.
While a $500 account minimum might not sound like a lot, do keep in mind that you may be charged a fee if you fail to keep the account balance above the required amount. This can put a dent into your savings effort, so it’s essential to keep it in mind.
Money Market Accounts typically come with an ATM card and may allow you to write checks against the account. If check writing is what you want, then best to check whether your bank offers this feature before signing up.
Pros and Cons of Money Market Accounts
Like everything else, MMAs have their own pros and cons. The pros and cons of this type of account will largely depend on your financial situation and goals. Either way, understanding the benefits and potential problems can help you make a smarter and more informed decision about your financial wellbeing.
- High-Interest rates – Generally speaking, MMAs tend to have higher interest rates, although this is not always the case.
- Insured by the FDIC or NCUSIF – The FDIC also insures MMAs if the account is held with a bank or NCUSIF if it is held with a credit union.
- Highly liquid – You can withdraw cash from your account at any time, with some accounts even including a debit card.
- A limited number of monthly transactions – Since MMAs fall under Regulation 9, you might experience some limitations when it comes to withdrawing money (more on this later)
- High minimum balance – MMAs generally have a minimum balance requirement with the amount varying from one financial institution to another.
Best Money Market Accounts
We will now look at some of the best Money Market Accounts available today. Most banks and credit unions have eligibility requirements that you’ll need to meet before opening an account.
These requirements will change from one financial institution to the next. Take the time to find the applicable requirements when applying for an account.
1. CIT Bank
CIT Bank is offering a Money Market Account with a low account minimum requirement of only $100. The APY rate is set at 0.55%, and it’s compounded daily and paid out every month. This can help you maximize what you earn from your saved money.
2. Discover Bank
Discover Bank’s Money Market accounts include 0 fees for withdrawing from more than 60,000 ATMs nationwide and no monthly fees. There is a minimum account balance requirement of $2,500 with an APY of 0.40% for balances under $100,000. Once you surpass this mark, you can look forward to an APY of 0.45%
3. UFB Direct
UFB Direct offers MMAs with an APY of 0.40%. You will need a minimum of $25,000 to open the account and maintain an average daily balance of $5,000. The account includes the ability to write checks and a complimentary Visa debit card.
Money Market vs Savings: Savings Accounts
Savings Accounts are bank accounts meant to hold money for more extended periods.
Essentially, they are there to help you save money. Because of this, there are restrictions in place to how many withdrawals you can make per month. This is due to what is known as Regulation D.
Savings Accounts also tend to pay less interest than Money Market Accounts. In most cases, there are no minimum balance requirements in place. This can be one less thing to worry about, especially if you’re starting to save. You can withdraw money from the account at any time.
To get better rates, look for High-Yield Savings Accounts, offering higher than average interest rates that in some cases surpass even those provided by Money Market Accounts.
The interest rate, measured as APY (Annual Percentage Yield), will vary from one bank or credit union to another but can go relatively high.
Regulation D is a regulation put in place by the Federal Reserve. It applies to both Savings Accounts as well as Money Market Accounts. It states that an account holder is limited to 6 withdrawals or transfers out of their account every month.
If you place more than six withdrawals, you might be charged a fee. Done regularly, the bank can also decide to close your account or change it to a checking account. Different credit unions and banks tend to have slightly different rules. When in doubt, check with the financial institution where you bank.
Who are Savings Accounts for?
Savings Accounts are ideal for anyone looking for a secure way to save money. Since most banks and credit unions do not ask for a minimum balance, they are best for those who are just starting to save money. The trade-off here is that the interest rate is going to be on the low-side. Even so, it can be a significant first step towards a healthier financial future.
Savings accounts are insured by the FDIC up to $250,000. This means that should something happen to the bank, you will still withdraw your money up to the insured amount. Consider opening another account should your balance get higher than the insured amount to keep yourself secure.
It’s worth considering that online savings accounts tend to offer higher interest rates than traditional savings accounts.
Pros and Cons of Savings Accounts
Just like any other type of bank account, Savings Accounts have their pros and cons. Of course, these depend on your financial situation and what you are looking to achieve with the account. Either way, it can help to know what you’ll have to give up and what you will get in return when choosing this type of bank account.
- Accounts are FDIC/NCUSIF insured – Savings accounts are insured up to $250,000, keeping your money safe.
- Money can be withdrawn easily – Withdrawing money from a Savings account is generally easy and hassle-free.
- There is no minimum balance to maintain – Most banks and credit unions do not impose a minimum balance requirement for this type of bank account.
- The interest rate offered is on the low side – Savings Accounts tend to have lower interest rates, but this is not always the case.
- Limited withdrawals compared to checking accounts – Regulation D limits the number of withdrawals from this type of account to 6 a month.
Best Savings Accounts
While most banks and credit unions offer Savings Accounts, some tend to offer better deals than others. Of course, you can always find a bank promotion and get some free cash or better APY rates, but these are still some of the best Savings Accounts you can sign up for today.
Chime is an online bank with no physical branches. Their Savings Account offers an APY of 1.00% – one of the highest interest rates around. There are no credit check requirements to open an account. Chime does not charge any fees and does not require a minimum balance in the account.
CIT Savings Builder account offers an APY of 0.40% if you meet specific requirements set by the bank. These are as follows; either open an account with $100 and deposit $100 or more every month or open an account with $25,000 or more. The rate compounds daily, and there are no account maintenance fees.
3. Discover Bank
Discover Bank is offering Saving Accounts with an APY of 0.55%. There are no balance requirements on the account, and the bank does not charge any maintenance fees either. The interest compounds daily, helping you grow your account that much faster.
Money Market vs Savings Account: Which Is Best For You?
Saving money is a foolproof way to take your personal finance to the next level. Both Savings and Money Market Accounts can be an excellent place for your money, and thinking about your financial goals will help you decide which type of account is right for you.
To sum up, Money Market Accounts typically have higher minimum deposit requirements, which usually means that they also offer better interest rates. You’ll want to keep your money in a Money Market Account for a longer period to make the most of what this interest-bearing account can offer, so they’re probably not best for short-term goals.
While both Money Market and traditional savings accounts typically allow up to six withdrawals or transfers per bank statement cycle, limiting your ATM withdrawals is best if you want to get the most value out of your accounts. The good thing about both of these types of accounts is the level of accessibility – you do get immediate access to your money if you need it.
I think having a few different savings accounts (and investments, of course) is the way to go. There are so many options to choose from when it comes to where to save your money – but whether you open a Money Market Account, a Certificate of Deposit, or decide that Money Market Mutual Funds are right for you, saving more money is always a good decision.