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If you are looking for a place to park your cash where you can earn a relatively high return while keeping your money accessible, you might be wondering: Which is better, a money market or savings account?
As with so many facets of personal finance, there is no single right answer that applies to everyone. By evaluating your needs, comparing accounts and thinking about your various choices, you can decide whether a money market account or savings account is better for you.
In fact, there may even be some advantages to opening one of each account type, as long as they are both free with no monthly fees or minimum balance requirements that may be hard to meet.
The Difference Between a Money Market and Savings Account
The key difference between a money market account and a savings account is how you can typically access funds.
A money market account, like a checking account, may allow you to write paper checks and make debit card transactions online and at the point-of-sale at brick-and-mortar retailers. You can also use your ATM card at automated teller machines to withdraw funds, often without fees if you use ATMs within your bank’s or credit union’s network. With a money market account, you can also write a withdrawal slip at your bank branch to receive cash.
You might be able to use your money market account to pay bills online, too, by permitting an ACH withdrawal through the bank account. You can also do this with a savings or checking account.
A savings account, on the other hand, may allow you to withdraw funds at an ATM or at a branch using a withdrawal slip, but you most likely cannot make other debit card transactions or write checks.
Money Market vs. Savings Account Interest Rates
Interest rates may differ between money market and savings accounts, too. But this depends more on the financial service provider than the type of account.
The average money market interest rate as of Oct. 16, 2023, was just 0.65% but you can find higher rates if you do some research.
For instance, you can open a jumbo money market account and earn more than a 5% APY on high balances. UFB Direct offers a Premier Money Market account with a annual percentage yield on any balance.
The average interest rate for savings accounts as of October was just 0.46%. In this case, the money market edges out the savings account slightly.
The highest-yield online savings account you’ll find this fall is , which is the same as the highest-yield money market account. This rate can be found at UFB Direct along with a few other online banks.
What Is an Advantage of a Money Market Over a Savings Account?
A money market account may provide you with easier, more convenient access to your money in a variety of ways including:
- ATM
- Debit card at point-of-sale
- Debit card transactions online
- Online bill pay
- Convenience checks
- Withdrawals at the bank branch
A savings account will most likely only permit you to withdraw funds at an ATM or the branch. If you want to use the money in other ways, you’ll have to first transfer it to a linked checking account or money market account.
What Is the Downside of a Money Market Account?
The biggest benefit to a money market account — easy access to your money — can also be a drawback for some people.
Because there are so many ways to access your money with a money market account, you might be tempted to dip into your savings more readily rather than find other ways to pay for an unexpected expense.
If you are saving for a specific goal, such as a vacation or home improvements, consider a CD that keeps your money locked up for a set amount of time.
If you aren’t sure when you’ll need it, or you want to have access to your funds in an emergency but not for everyday use, consider a savings account, instead.
Understanding Withdrawal Limits
The U.S. Federal Reserve recently removed “Regulation D,” which mandated that banks impose withdrawal penalties for any more than six withdrawals from a savings or money market account within a statement period, typically one month.
Although the Federal Reserve removed the limit to make it easier for people to access their money during and following the pandemic, some banks still impose these fees. The fees apply to both savings and money market accounts.
To avoid these fees, read the fine print on your bank’s fees and disclosure statements carefully. Ideally, you can find a savings or money market account with no monthly fees, no minimum balance requirements, no monthly withdrawal limits or withdrawal penalties, and a high-interest rate.
Which Is Safer, a Money Market or Savings Account?
Both money market and savings accounts are FDIC insured up to $250,000 per account holder, per account type. If you have a joint account, your funds are protected up to $500,000. If you open an account with a credit union instead of a bank or a financial technology company, your money is protected up to the same limits by the National Credit Union Administration.
If you have more than $250,000 to deposit, you can protect the funds by diversifying them between a money market and a savings account within the same financial institution. Because they are different types of accounts, money in each is protected up to the maximum allowable limit.
Which Is Better, a Money Market or Savings Account?
So is it better to have a money market account or a savings account? The choice between a money market or savings account depends on how frequently you feel you will need to access your money.
Additionally, if you want to keep your savings in the same bank as your checking account for convenience, you should choose the account with the higher interest rate, regardless of other factors.
Conclusion
Choosing between a money market and savings account may feel like a big financial decision. But they both offer many of the same features and benefits. Choose the account with the highest interest rate at the bank you prefer, taking into account factors such as convenience, customer service, mobile access, ATM access and the bank or credit union’s other offerings.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Oct. 18, 2023.
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