Money Market Account vs. Savings Account: Where Should You Put Your Savings Now

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When it comes to bank accounts, there are a lot of choices today. A checking account is practical for day-to-day spending and paying bills, but what about putting money away for an emergency, to meet short-term savings targets or to gear up for longer-term goals, such as a down payment for a house?

To stash your cash, savings and money market accounts are popular options. And while they essentially function in the same way, some key differences exist, and one type could suit your needs better than the other. Figuring out which is better for you begins with understanding how they differ.

Overview: What Is a Money Market Account?

One way to think of a money market account is as a cross between a checking account and a savings account. Unlike savings accounts, money market accounts let you write checks, and some banks have accounts that permit debit card purchases. At the same time, you’ll typically earn a higher interest rate with money market accounts than with interest-bearing checking accounts.

Money market accounts are usually categorized as a type of savings account, but they tend to give customers a chance to earn higher interest rates than traditional savings accounts.

Where Can You Open a Money Market Account?

You can open a money market account in the same places you’d open most any bank account, including at a traditional bank, online bank or credit union.

Overview: What Is a Savings Account?

A savings account works similarly to a money market account. You store your money with a financial institution and earn interest on the balance in your account. The interest paid is the bank’s way of saying thank you — and of persuading you to keep your money there.

Good To Know

A savings account is an ideal place to keep money you might need later, such as an emergency fund or savings for a down payment. It is a better avenue for saving money than, for example, a certificate of deposit. A CD typically requires you to not touch your money for a set amount of time.

Money Market Account vs. Savings Account

Money market accounts and savings accounts have more in common than not, but you might wonder whether a money market account has any advantages over a savings account. The answer is that a money market account is better than a savings account when it comes to your ability to access your money. Money market accounts let you write checks or even make debit card purchases, in some cases, whereas you don’t have this option with traditional savings accounts.

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Here’s a look at how the two accounts are alike and different.

Money Market and Savings Account Fees

Some, but not all, savings accounts charge a monthly maintenance fee unless you maintain a minimum balance or qualify for a waiver in another way, and the same is true with money market accounts.

Online savings accounts tend to have low or no fees. For example, Ally Bank, which is a completely online bank, charges no monthly maintenance fees for its money market or savings accounts. KeyBank, which is a brick-and-mortar institution, charges a $4 fee for its savings account, although it is waivable if you also have a checking account at the bank. The bank’s money market fund comes with a $20 monthly fee unless you have either $25,000 on deposit or a relationship package checking account.

Money Market Account Rates

Online banks generally have the highest interest rates for money market accounts. For example, online bank Ally currently is offering a APY, no matter how much you have in the account, and there are no minimum balance requirements.

At KeyBank, you need $5,000 to open an account, and the standard APY goes up to , depending on your balance. Account holders can score a higher rate if they meet the relationship rate requirements. KeyBank will also occasionally run promotional rates as well.

Savings Account Rates

With a savings account, you can expect a smaller APY than you might get with other savings vehicles, such as a money market account or certificate of deposit. But you can shop around for the best rates. Using the comparison between Ally Bank and KeyBank again, Ally’s current savings rate is APY, and KeyBank’s is APY.

Are Money Market Accounts and Savings Accounts Insured?

Anytime you open a bank account, you’ll want to make sure your bank or credit union is insured by either the Federal Deposit Insurance Corp. or the National Credit Union Administration.

This means your deposits will be covered up to $250,000 — per depositor, per bank and for each account ownership category — in case your financial institution fails.

Online and Mobile Accessibility

Nearly all banks, whether online or brick-and-mortar, now offer both online and mobile accessibility. Online access is provided through the bank’s website, while most banks also offer mobile apps that customers can use to conduct banking transactions.

In addition to viewing account transactions, for example, most banking apps allow users to deposit checks remotely, transfer funds, lock ATM or debit cards and set account alerts. Some even offer budgeting and financial planning tools. 

Account Pros and Cons

No single account offers the answer to every financial solution. That’s why it’s important to weigh out the pros and cons so you can determine if an account is a good fit or not. Here’s a look at the pros and cons of both savings accounts and money market accounts.

Savings Account Pros

• Can offer very high APYs on a relative basis, particularly at online banks
• Typically have low or no monthly maintenance fees
• Withdrawals are no longer limited at most banks

Savings Account Cons

• Can usually only access money via an ATM card or in-person withdrawal, if applicable
• There’s an opportunity cost of keeping money in a savings account vs. a higher-earning, longer-term investments like the stock market

Money Market Account Pros

• Can offer greater accessibility than a savings account through check writing and/or debit card access
• May offer higher yields, particularly with larger deposits

Money Market Account Cons

• May have high minimum balance requirements
• May have higher fees

Money Market Account vs. Savings Account: Which Account Should You Use?

As with any financial product, your decision to use a money market account vs. savings account depends on your own financial goals. Money market accounts typically require account holders to maintain a high minimum balance to avoid a monthly fee. If you already have a savings account with a high balance and want a risk-free account that provides a higher interest rate — and you meet the minimum balance requirements — you might be better off with a money market account.

What Savings Accounts Are Best For

• Building wealth slowly, over a long period of time
• Having money built up in case of an emergency
• Earning more interest than with a checking account
• The ability to transfer funds to and from a linked checking account
• Taking advantage of savings account promotions, which often are offered by banks to encourage customers to open an account

Downsides of Savings Accounts

• Often have lower APYs than money market accounts
• No tax advantages

Alternatives to Savings Accounts

• High-yield savings accounts
• Certificates of deposit
• Money market accounts
• Cash management accounts

What Money Market Accounts Are Best For

• Earning higher interest than with standard savings accounts
• Accessing your cash via debit card or checks but with higher interest than checking accounts
• Growing your savings faster to better keep up with inflation
• Avoiding your money being tied up in a “time” account, like a CD, that charges penalties for early withdrawal

Downsides of Money Market Accounts

• Minimum balance requirements are often higher than savings accounts
• Does not offer tax advantages

Alternatives to Savings and Money Market Accounts

Savings accounts and money market accounts aren’t the only two options when it comes to shorter-term savings. Here are some other ways to earn interest on your money.

Certificates of Deposit

Certificates of deposit are like savings accounts, but they require you to keep your money on deposit at the bank for a specified term. If you take out your money early, you’ll forfeit some interest in the form of an early withdrawal penalty.

Promotional CD rates may sometimes top those available on savings or money market accounts, but the tradeoff is the loss of access to your funds.

Treasury Bills

Treasury bills are among the safest investments in the world, as they are backed by the full faith and credit of the U.S. government. Although they have maturity dates of up to 52 weeks, they are highly liquid and can be sold in the open market at any time. The amount you’ll earn on a T-bill is often less than you would with a savings or money market account due to its incredible liquidity and safety.

High-Yield Checking Accounts

Although not commonplace, some banks offer high-yield checking accounts. The APYs on these accounts aren’t nearly as high as with high-yield savings or money market accounts, but considering most checking accounts don’t pay any interest at all, they can be a welcome option.

Takeaway

When choosing a bank account of any type, it’s wise to compare a number of accounts at a variety of financial institutions. You worked hard for that money. You want a bank that works hard for you, too.

Cynthia Measom, Kathryn Pomroy, John Csiszar and Jami Farkas contributed to the reporting for this article.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Sept. 17, 2024. 

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