Money Market vs. Savings Account: Differences, Pros & Cons

If you have a good amount of cash saved up to set aside, you might be wondering where the best place to put it is. To figure out which option is the best for you, money market vs. savings account, keep reading to learn more about these two accounts.

Although a money market and a savings account are similar, there are some key differences between the two. Additionally, understanding these differences can help you save more effectively. Below is everything you need to know about money market vs. savings accounts.

What is a Money Market Account?

Similar to savings accounts, money market accounts are bank accounts where you can deposit money and earn interest. However, they are different in that the funds you deposit are invested into financial markets. Your funds will also earn more interest than they would in a savings account.

A good way to describe money market accounts is that they are a mix between a savings and a checking account. In addition to earning interest, money market accounts also usually include check-writing abilities and an ATM card.

When Should I Use a Money Market Account?

You should use a money market account to save for medium-term goals — those you’re more than a few years but less than a decade away from. For instance, if you need money for a down payment on a house, a money market account would be more beneficial in this case because it would earn higher interest.

Money market accounts usually earn higher interest rates than savings accounts. According to the FDIC, earned interest rates can be more than twice as high as for money market accounts than for savings accounts depending on how much you invest.

What is a Savings Account?

Savings accounts are bank accounts where you can deposit money and typically earn a small amount of interest. Usually, you can earn higher rates with higher balances or by linking to a checking account with the same bank.

Sometimes, savings accounts offer debit or ATM cards with the account, which allow you to access your money by making a limited number of electronic transfers or ATM withdrawals. However, you most likely can’t use your savings account debit card to spend on everyday transactions.

When Should I Use a Savings Account?

You should use a savings account to save for short-term goals. You should open a savings account if you need to build up an emergency fund or put money aside for a short-term financial goal — something you want to reach within the next couple of years. Additionally, savings deposits earn very low interest rates, so should keep a smaller sums in this type of account.

Keeping money in a savings account can help discourage you from spending it. However, you can also access the funds quickly if you need them unexpectedly.

Pros and Cons

Money Market Account

Pros:

• Safety: A benefit of money market accounts is that they can be low-risk savings options. Many MMAs are insured by the Federal Deposit Insurance Corporation (FDIC)
• Savings Rate: Money market accounts can sometimes have higher savings interest rates, the percentage of money you earn each year, than a traditional savings account.
• Flexibility: With online and in-person banking options, MMAs can give you quick access to your money by withdrawing, transferring or writing checks. Some banks even give you ATM access with a debit or ATM card.

Cons:

• Balance Requirements: Some banks require you put down a higher minimum deposit than you’d need with a checking or savings account. You also might have to keep a minimum balance at all times otherwise you’ll be charged a fee.
• Limited Transactions: Due to federal banking regulations, you can only make six withdrawals or transfers per month with most MMAs.
• Varying Interest Rates: Saving interest rates on a money market account can change depending on the overall market’s interest rates at a given time. The reason this might be a disadvantage is because the rate could fall, but it could also rise.

Savings Account

Pros:

• Easy Access to Your Money: Many savings accounts offer easy access to your account with multiple bank branches, ATM cards, mobile apps and online banking platforms.
• Free to Open: Most savings accounts cost nothing to open and have no monthly fees.
• Start With a Little: In most cases, you don’t need any money to open a savings account. There’s often no minimum balance requirement and you can make deposits of any size as often as you’d like.

Cons: 

• Temptation to Spend: Savings accounts are on-call products, meaning you can access your money whenever you want. While it’s nice to have financial freedom, a time deposit may be a smarter option if you’re tempted to dip into your savings.
• Inflation: If your savings account doesn’t pay a competitive interest rate, inflation could be eating up the value of your earned interest, leaving you with an account balance that’s worth less a year from now than it is in today’s dollars.
• Rates Can Change: One key disadvantage is that savings account interest rates are variable, meaning that financial institutions are free to set and change interest rates as they wish.

Author’s Verdict

Now that you know all the information about money market vs. savings accounts, you can decide which one is best for you. However, both accounts can keep your money secure while helping you accomplish unique financial goals.

In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.

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U.S. Bank Promotions 2024: $400, $450, $900 Personal Checking & Business Bonuses

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