Comparing Money Market Accounts and Savings Accounts: The Best Option for Your Savings Today
When it comes to bank accounts, there are plenty of options available today. A checking account is great for everyday spending and paying bills, but what about saving money for emergencies, short-term goals, or long-term plans like a house down payment?
For saving money, savings and money market accounts are popular choices. While they work similarly, there are key differences that might make one more suitable for you than the other. Understanding these differences is the first step in deciding which account is better for your needs.
**What Is a Money Market Account?**
Think of a money market account as a blend of a checking and a savings account. Unlike savings accounts, money market accounts allow you to write checks, and some even let you make debit card purchases. Typically, money market accounts offer higher interest rates compared to interest-bearing checking accounts.
Money market accounts are generally considered a type of savings account but often provide higher interest rates than traditional savings accounts.
**Where Can You Open a Money Market Account?**
You can open a money market account at most places where you can open a bank account, including traditional banks, online banks, and credit unions.
**What Is a Savings Account?**
A savings account functions similarly to a money market account. You deposit your money with a financial institution and earn interest on the balance. The interest is the bank’s way of thanking you and encouraging you to keep your money there.
**Good To Know**
A savings account is perfect for money you might need later, like an emergency fund or savings for a down payment. It’s a better option for saving money compared to a certificate of deposit (CD), which usually requires you to leave your money untouched for a set period.
**Money Market Account vs. Savings Account**
Money market accounts and savings accounts share many similarities, but you might wonder if a money market account has any advantages over a savings account. The main advantage of a money market account is easier access to your money. You can write checks or make debit card purchases with a money market account, which you can’t do with a traditional savings account.
Here’s a comparison of the two accounts:
| ACCOUNT FEATURES | SAVINGS ACCOUNT | MONEY MARKET ACCOUNT |
|—————————|—————–|———————-|
| Interest-bearing | Yes | Yes |
| FDIC or NCUA-insured | Yes | Yes |
| ATM access | Yes | Yes |
| Check-writing privileges | No | In most cases |
| Unlimited withdrawals | No | No |
| Requires minimum deposit | Depends on account | Depends on account |
| Penalty for early withdrawal | N/A | N/A |
| Compatible with electronic transfers | Yes | Yes |
**Examples of Money Market Accounts**
Online banks often offer the highest interest rates for money market accounts. For instance, Ally Bank currently offers a 4.20% APY with no minimum balance requirements. In contrast, KeyBank requires $5,000 to open an account, offering only a 0.02% APY for that balance, with the APY increasing slightly with higher balances but capping at 0.01%.
**Examples of Savings Accounts**
Savings accounts generally offer lower APYs compared to money market accounts or CDs. However, you can shop around for the best rates. For example, Ally Bank’s current savings rate is 4.20% APY, while KeyBank’s is 0.01% APY.
**Fees**
Some savings accounts charge a monthly maintenance fee unless you maintain a minimum balance or qualify for a waiver. The same applies to money market accounts. Online savings accounts typically have low or no fees and often offer higher annual percentage yields than traditional brick-and-mortar banks.