The key differences between a money market and a savings account are the annual percentage yield, which is what you earn, and how you access the account.
Editor’s note: This post was originally published in February 2019. It’s been freshened up with new pictures and commentary on December 30, 2019.
How the two are similar
Most financial institutions offer both, money market and savings accounts which are great options to save without worrying about losing money. Both are insured up to the $250,000 per account owner by the NCUA (credit unions) and FDIC (banks).
The two account types are interest-earning which means the financial institution will pay you to leave your money in the account. You can also make a deposit as many times as you’d like.
However, Regulation D limits these two account types to 6 withdrawals and transfers out of the accounts, which excludes transfers made by going into the financial institution (Source: Federal Reserve).
Money market account
Money market accounts are best-described as hybrids between a checking and savings account. The earn more interest like savings accounts and have the ability to write checks like a checking.
The interest rate you earn depends on the specific financial institution. Generally, the more money you leave in the account, the higher the interest rate which means you earn more. This is meant to incentivize you to save more and keep it in the account.
Aside from higher interest rates, the funds kept in a money market account are liquid. This means that if you need to withdraw the funds or make a transfer, you won’t get penalized for it.
Remember, each month, you’re still limited to 6 withdrawals and transfers out of the account per Regulation D (Source: Federal Reserve).
Savings accounts earn higher interest rates than checking accounts. They’re typically the first account you’ll use to begin saving and building an emergency fund.
Most financial institutions will either link your savings account to your debit card or give you an ATM card. If the account is linked to your debit card, purchases will be made with the checking account but you can access the savings at ATMs.
Note: Some financial institutions require a savings account with or without minimum balance requirements, in order to have other accounts with them.
Money market vs. savings
Both accounts are great for savings and are insured by the NCUA or FDIC. It’s best to start with a savings account to build your emergency fund. Then, open a money market to continue saving and earn a higher yield.
|Feature||Savings Account||Money Market Account|
|FDIC/NCUA Insurance (if the financial institution is insured)||Yes||Yes|
|Ability to Write Checks||No||Yes|
When comparing money market vs. savings accounts, it’s important to understand that both are great accounts that you should have. The main differences between the two accounts are the annual percentage yield (APY) and how you access them.
Start with a savings account to build an emergency fund and use the money market for long-term savings.
Additional money resources
Want to learn more about saving money or personal finance? The following are a few additional resources:
Featured photo by Unsplash.