Money Market Account vs Traditional Savings Account: A Complete Guide

Nowadays, banks and financial institutions offer a ton of options for saving, including those that allow you to withdraw money anytime while paying you interest. For most, stashing their cash in a savings or money market accounts (MMA) is among the best options. These types of deposit accounts offer easy access to your funds and also yield interest, both of which are important in periods of inflation, or worse, economic recession. 

Both savings and money market accounts are reliable and safe methods to save money. However, how to choose which one is better for you? According to statistics, the national average annual percentage yield(APY) for savings accounts was 0.23% in March 2023, whereas, the APY for money market accounts in March 2023 was 0.31%

These are just statistics. If you want to know which is the better option, fret not! In this blog, we have examined the basics of the money market and savings accounts and also provided a side-by-side comparison to help you make an informed choice. 

Let’s dive in. 

Money Market Account vs Savings Account

Most banks and financial institutions, online and offline offer both money market and savings accounts to their customers. On the surface, both seem like deposit accounts that pay interest to the account holder and let them save money. Additionally, both accounts are also protected by the Federal Deposit Insurance Corp(FDIC). 

Money market accounts offer higher rates of interest for higher initial deposits required at the time of account opening. On the other hand, savings accounts earn lower rates of interest and generally have no minimum opening balance requirements.

Since the main usage of these accounts is to save money instead of use funds, most banks put a limit on the number of withdrawals the account holder can make in a month. Before April 24, 2020, as per FDIC, account holders were limited to six withdrawals or transfers per month. Since then, the restriction has been removed, however, some banks still place limits on the number of withdrawals. 

What is a Savings Account?

A savings account is a type of deposit account where you can deposit money and earn interest. It is the best choice for people who are saving up for short-term financial goals like home renovations, vacations, or big purchases. A savings account generally offers a higher rate of interest than a checking account, allowing you to save more money in less time. 

Nowadays, opening a savings account is easier than ever. The account can also be linked to a debit card to make deposits, withdrawals, transfers, and wire payments from your account to others. Moreover, savings accounts can easily be liquidated, providing you with easy access to your funds. 

As an interest-earning account, a savings account is similar to money market accounts as both allow you to make unlimited deposits. However, a saving account only allows up to six withdrawals per month.

Savings accounts generally earn less interest than money market accounts. According to the FDIC, the average national rate of interest was 0.4% in May 2023. 

Advantages and Disadvantages of Savings Accounts

Now that you understand what a saving account is. Let’s take a look at its pros and cons. 

Pros	Cons
Interest-bearing Account	The rate of interest is less than money market accounts
ATM withdrawals allowed	Limited to six withdrawals per month
FDIC insured	Bill payments and check writing are not allowed.

What is a Money Market Account?

Similar to a savings account, money market accounts are also interest-bearing accounts. However, one major difference is that money market accounts allow you to pay bills, use a debit card, and write checks. 

Like savings accounts, the rate of interest in MMA is mostly varied. However, unlike a savings account, money market accounts offer a tiered rate of interest, meaning larger balances earn more interest. Money market accounts also have certain features of both savings and checking accounts. Account holders can collect interest on the balance they hold at the end of each month.

Moreover, money market accounts are highly liquid, meaning you can withdraw money anytime you want. However, some banks may limit the number of withdrawals to six in a month. In such cases, it is better to store money that you won’t need for a while in a money market account. 

The average rate of interest for a money market account was 0.59% in the month of May 2023. However, the best money market accounts pay around 4%. Money market accounts are generally better if you are going to make a big deposit. If you have a small deposit, a savings account may be the better option for you. 

Also, it may be best to note that money market deposit accounts and money market funds are not the same thing. We will talk about them in a while. 

Read Also:- Comparison Between CD vs Savings Account

Advantages and Disadvantages of Money Market Accounts

Here we have listed the pros and cons of money market accounts. 

Pros	Cons
Interest-bearing	The rate of interest earned is less
Check writing and bill payments are allowed	Limited to six withdrawals per month
ATM Withdrawals are allowed	Requires a sizable minimum deposit
FDIC insured	Not suitable for smaller deposits

Despite being similar to savings accounts, most people choose to open a money market account instead of a savings account. Here are some reasons why people choose to save in a money market account- 

Competitive APYs: Most money market accounts offer competitive APYs to users. Moreover, big savers can earn higher rates of interest in larger deposits. 

Check-writing privileges: Unlike savings accounts, money market accounts allow you to write checks. It is also important to note that most banks only permit up to six withdrawals per month. 

Debit and ATM Cards: MMAs also allow you to withdraw money from an ATM and also make debit card purchases. Moreover, ATM withdrawals don’t count toward the transfer limit).

Safety and Security: Money market accounts are insured up to $250,000 per depositor, per insured bank, and per ownership category. 

Money Market Account vs Money Market Funds

While the names are similar, money market accounts and market funds are not the same things. In fact, they are poles apart. They are not deposit accounts and are commonly provided by investment companies. These are also known as Money market mutual funds. 

Money market mutual funds are different from traditional demand deposits, checking, and savings accounts. Investors can buy and sell shares and stocks in these funds, which are then invested in highly-liquid assets like cash. They generally mature in less than 13 months. 

Is a Money Market Account a Savings Account?

Although money market accounts are technically a type of savings account, they offer better benefits to users. Money market accounts provide users with the ability to use debit cards and write checks. Additionally, the best money market accounts provide significantly higher rates of interest as the bank invests your money in low-risk, short-term assets. 

Difference Between Savings and Money Market Accounts

Both types of accounts allow you to deposit money and interest. However, money market accounts often come with transactional features like the ability to write checks, pay bills, and use debit cards. 

Parameters	Savings Account	Money Market Accounts
Transfers and Withdrawals	Six Withdrawals per month	Six withdrawals per month. However, some banks don’t put limits on withdrawals
Interest	Earn varied rates of interest. It is lower than the interest on money market accounts	Earn varied rates of interest. It is often higher than the interest on a savings account.
Check-writing	Users can’t write checks	Users have the ability to write checks
Debit-cards	No access to debit cards	Users can use debit cards and ATM withdrawals
FDIC Insurance	Insured up to $250,000	Insured up to $250,000
ATM Withdrawals	No	Yes

How to Choose Between a Money Market and Savings Account?

First and foremost, it’s not like you can’t have both a savings and money market account. Most banks offer both options and there’s no reason you can’t have both. For instance, you can use a savings account to save money for goals like house renovation, vacation trips, or a down payment for a car. On the other hand, you can also use a money market account to pay bills, write checks, and use a debit card. 

However, if you want to choose between one or the other, we have listed some factors that you should consider to make an informed choice. 

Consider What the Money is For

First you need to determine the purpose of your funds. For example- you might be saving for a house or for a vacation. Once you figure out the purpose of your funds, you can analyze the pros and cons of both deposit accounts to determine which is the best option for you. A savings account is best if you are only saving money for later use. 

However, if you are trying to open an account for daily transactions and bills, you might consider a money market account. Since MMA allows the use of debit cards and checks, it should be used as more of a transactional account. 

Compare Interest Rates and Fee

Before opening an account, you should check the schedule of fees and interest rate disclosures to learn more about it. However, both savings and money market accounts can offer competitive rates. 

Money market accounts offer a tiered rate of interest based on the deposit amount, paying higher yields for larger deposits. However, they also have higher minimum deposit and balance requirements, so make sure you are able to deposit enough money and maintain a minimum account balance to keep the account open. 

Required Information

Before opening a money market or saving account, make sure you have all the basic required information. For a general application, you will need the following documents- 

• Government-issued ID
• Social Security Number
• Birth Date
• Address
• Contact Information

Also, often you will also need a minimum deposit to open a savings or money market account. 

Watch Out for Undisclosed Fees

Some money market and savings accounts charge a monthly maintenance fee if you don't fulfill certain criteria such as minimum balance or receiving at least one deposit per month. Make sure you know and follow an account’s requirements to avoid the monthly penalty fee that can hamper your savings amount. You can also find a bank that doesn’t have such restrictions. 

Additionally, some savings and money market accounts also limit the number of withdrawals and transfer to six per month. Exceeding the withdrawal limit can incur an excess withdrawal fee.  Make sure to consult with your bank about the withdrawal limits so you don’t exceed them.

Key Takeaways

• Both savings and money market accounts are deposit accounts that pay interest to the account holder. 
• A savings account provides a moderate rate of interest and is often used for short-term savings. 
• Banks use money from savings accounts to lend to other customers through credit cards, lines of credit, and car loans. 
• Money market account offer a higher rate of interest than a saving account. This is because the bank invests the funds from an MMA in short-term assets, high-liquidity assets. 
• Money market accounts often have a minimum balance requirement. 
• While savings accounts are better for short-term saving goals like house renovation, money market accounts are better for daily use, bill payments, and check writing. 
• Money market account also offer account holders the ability to use debit cards, checks, and ATM Withdrawals. Savings account holders don’t get these features. 
• Both accounts are limited to six withdrawals per limit. However, you should confirm with your bank or financial institution about withdrawal limits. 

Final Words

During times of economic instability or recession, it is important to have savings in an account that offers high liquidity and some interest. Annual percentage yield and minimum deposit requirements are two of the most important factors that should be considered when making a choice. 

While the debate about the money market vs saving account is never-ending, it is important to determine what your goals are before opening one. If your goal is to save for a vacation or a down payment for a house, a savings account is the better choice. However, if you are looking for a daily use account that you can use to pay bills and write checks, you should opt for a money market account. However, make sure to learn about your account's minimum balance and withdrawal limits before opening an account as penalty fees can hamper your saving amount. 

Frequently Asked Questions(FAQs)