To determine which of the two account alternatives is best for your financial position, compare them.
You're not alone if you find it difficult to save money. A 2020 Northwestern Mutual study found that over one in ten Americans have no savings at all.
It might be challenging to find extra money to stash away after monthly costs like rent and mortgage, health insurance, auto insurance, and groceries.
Putting a little money aside for whatever the future holds can end up being one of the best financial decisions you can make, whether you're saving for larger purchases like a home or new furnishings or for emergencies or greater expenditures like emergency funds.
Savings accounts offer interest rates that assist your money increase over time in addition to serving as a location to store your cash.
Traditional savings accounts are a popular option, offered by banks and credit unions. How about money market accounts, though?
The benefits and drawbacks of money market and savings accounts are listed below so you can choose which is best for you.
A savings account is what?
A savings account is a place where you can keep your money while it's not being actively used by a bank, financial institution, or credit union.
Savings accounts typically pay interest either monthly or annually on the balance.
Savings accounts are primarily offered by banks and credit unions, however there are also some online banks. A bank account can be opened online or at a physical location.
advantages of having a savings account
To ensure that the money you deposit is safe, you should choose a savings account at a business that is covered by the Federal Deposit Insurance Corporation (FDIC). You can rapidly withdraw money from a conventional savings account and move it to a checking account or another account. There normally isn't a minimum deposit requirement for accounts, so you can start one right immediately.
Cons of having a savings account
Savings account interest rates are typically lower than those of other accounts, and you typically can't create checks from a savings account. To write a check, you must first transfer money to your personal checking account.
A money market account is what?
An MMA, also known as a money market account, is similar to a savings account in that you can deposit funds and collect interest over time on the remaining balance. A bank, an internet bank, or a credit union might provide a money market account. These accounts, in contrast to savings accounts, provide some of the same advantages as checking accounts, such as the capacity for check writing and ATM withdrawals.
A money market fund, a mutual fund that you could purchase through an investing account, should not be confused with a money market account.
Money market account advantages
Compared to savings accounts, money market accounts provide greater interest rates. You may effortlessly cash out your money, get cash, and write checks. You can make purchases using a debit card when you have a money market account. Cash back is available on specific purchases or at specific retailers with some money market accounts.
Issues with money market accounts
A money market account frequently has a higher minimum balance requirement. The quantity and frequency of transactions may also be restricted.
What distinguishes an MMA from a standard savings account?
It is simpler to use your money when you have a money market account since you may write checks and use a debit card to make purchases. Although a money market account typically yields higher interest, it is just as versatile and simple as a checking account.
Because you can't use a debit card or write checks, savings accounts aren't always as simple to use. There may be a cap on the total number of transactions allowed between accounts, but you can transfer savings to your checking account. When you want to make an electronic transfer, for example, there may be extra processes that need to be taken before you may withdraw funds.
Money market accounts typically have higher interest rates than standard savings accounts, but they also have higher minimum balance requirements.
Savings accounts versus money market accounts
| Money Market Account | Savings Account | |
|---|---|---|
| Interest Rates | Higher interest rate than traditional savings accounts | Typically lower interest rate than money market accounts |
| Minimum Balances | Requires higher minimum balance to get best APY | Low or no minimum balance required for most accounts |
| Checks and Withdrawals | Can write checks, withdraw funds, use an ATM and debit card | Can withdraw funds and use an ATM, but can’t write checks or use a debit card |
| Ease to Liquidate | Relatively easy to liquidate or transfer funds | Relatively easy to liquidate or transfer funds |
| FDIC Insured | Yes | Yes |
| Monthly Fees | Typically no fees, unless you don’t meet minimum balance requirements | Typically no fees, unless you don’t meet minimum balance requirements |
| Best Features | Typically offers higher interest rate and offers the ability to write checks and use a debit card | Low or no minimum deposit or balance requirements |
Should I open a savings or money market account?
Your existing financial condition or the goals you have for a savings account will determine whether you should open a money market account or a savings account.
How much can you deposit right away? Since the interest rates are typically greater, a money market account can be the best option if you can meet the minimal requirements.
However, if you are unable to make the required minimum deposits and would like a simple alternative linked to a checking account, a regular or high-yield savings account would be the best option. To choose the best account for you, you can contrast many options.
Money market accounts, in summary, provide greater interest rates and more freedom for cash withdrawals and buy transactions. However, they frequently have higher minimum balance requirements.
Consider the tiny print and specifics, such as the interest rate, minimum balance, any transaction limits, and monthly fees, before choosing which type of account to open.