Published in: Banks | Dec. 31, 2018

Money Market vs. Savings Account

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Which of these bank accounts will better meet your needs? Find out here.

A row of glass jars with the first being empty and the others increasingly full of coins and the final one has a plant sprouting from it.

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Many savers have noticed that banks are finally starting to boost their interest rates on the accounts that they offer. If you want your savings to generate valuable income for you, then finding out how to get the most possible from your bank is crucial. But many banks offer several different types of accounts. One of the most confusing issues that can come up for savers is what the difference is between a money market account and a savings account.

Money market accounts and savings accounts have a lot in common at most banks. The way they work, though, has some subtle distinctions that make it important not to confuse the two. Choosing between a money market account and a savings account requires thinking about exactly what your specific needs are and then seeing which of the two bank products works better to meet them. Below, we'll take a closer look at money market and savings accounts to compare and contrast their features.

The basics of savings accounts

Savings accounts are a typical entry-level option for savers who want the security of a bank account but want to receive interest on their savings. Money that you deposit in a savings account earns whatever rate of interest the bank sets, and you can generally add to or withdraw from the savings account at any time without penalty.

You'll find a wide variety of interest rates on savings accounts depending on the bank and the exact requirements of the account. Basic savings accounts that have low or no minimum balances typically pay the lowest interest rates. Most banks also offer high interest savings accounts that have higher rates, but they also typically come with more onerous requirements. For instance, a high interest savings account might require a fairly high minimum balance, or you might have to have other relationships with the bank -- such as a mortgage or a checking account -- in order to have access to the higher rates that these upper-tier savings accounts pay. If you don't meet the minimum balance requirements, then your bank might charge you a monthly maintenance fee or some other charge.

One key attraction of savings accounts is that your money is protected in the event that something happens to your bank or credit union. As long as your financial institution is included in their coverage, then the Federal Deposit Insurance Corporation will protect up to $250,000 of your money at any given bank. Those who use credit unions typically enjoy similar coverage from the National Credit Union Administration. The $250,000 limit applies to the total of all of your accounts with the bank, not each individual account. So if you have $250,000 in a savings account and another $100,000 in a certificate of deposit at the same bank with the two accounts in the same name, then the insurance protection will only apply to a total of $250,000 -- not the entire $350,000 you have on deposit in your multiple accounts.

The basics of money market accounts

Money market accounts are essentially hybrids between savings accounts and checking accounts. Money market accounts -- which shouldn't be confused with money market funds, which are very different investments offered by mutual fund companies rather than banks -- offer the high interest rates that savings accounts feature, but they also give accountholders the right to write a limited number of checks each period.

At many banks, the interest rates paid on money market accounts are higher than what regular savings accountholders receive. However, you'll also often see higher minimum account balances. It's not unheard of to see some banks require five-figure account balances to avoid monthly maintenance or other fees.

The key feature that accountholders like about money markets is that they can write checks on their accounts. But unlike with standard checking accounts, banking regulations put a limit on check-writing from money market accounts. A rule known as Regulation D sets a six-check maximum per monthly account period for money markets.

Money market accounts also receive the FDIC or NCUA insurance protection that standard savings accounts get. Again, the same $250,000 per institution amount applies to all accounts at that particular bank, protecting you in the event the bank has insurmountable financial problems.

Should you go with an online bank for your money market or savings account?

You can find both money market accounts and savings accounts at most online banking institutions as well as at your local bank branch. No matter which type of account you choose, there are some pros and cons involved with deciding whether to go with an internet-based bank or one with physical branch locations.

If you want top rates, online banks are usually the better bet. The cost savings online banks enjoy by not having to pay for networks of physical locations allows them to pay higher interest rates. With plenty of options to move funds electronically, it's not necessarily a huge handicap from the customer perspective not to have a branch available.

If you need personalized service, brick-and-mortar banks have clear advantages. Online banks do their best, but for many customers, talking on the phone, exchanging email, or talking in an online chat just doesn't match up to the one-on-one discussions you can have when you visit a branch location.

Choosing a money market or savings account

Picking a money market account or a savings account is a highly personal decision, but most people should take the following things into consideration:

  • If check-writing is important to you and you don't want to have a separate checking account, then a money market account can be the best answer available. Standard savings accounts simply don't let accountholders write checks.
  • For those with modest amounts of savings, a savings account will often be the better choice. Even if a money market account pays higher interest rates, you can end up with less income overall if you lose some of your interest to monthly fees that a money market will charge if you can't maintain high minimum balance requirements.
  • If you expect to write a lot of checks, then a money market account by itself won't meet your needs. In that case, you'll want to look at whether adding a checking account to either a savings account or a money market account gives you the best overall results. 

Finally, consider the difference in rates between the two accounts to see whether it's really worth it. If a money market account offers only a slightly better rate, then the downsides of choosing a savings account are a lot less than if the money market account’s rate is dramatically higher.

Those seeking to keep their money secure and readily available can turn to either savings accounts or money market accounts. Take a look at the banks offering these accounts, and then examine the features and requirements closely to see which one better fits with your financial situation and goals.

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