The real challenge is finding a place to store your money so that it grows fast enough. Everyone knows about savings accounts, but there's another account available that combines features from both savings accounts and checking accounts.

This account is called a money market account, or MMA for short. MMAs have favorable interest rates and you can access your money via an ATM, too.

But which one earns you more interest?

Let's compare and contrast the two in this guide to find out.

Money market vs. savings accounts

Key Features At a Glance
Savings Accounts Money Market Accounts
Average interest rate: 0.05% APY Average interest rate: 0.08% APY
No minimum balance for most savings accounts Requires a high minimum balance to get the best interest rate
Easily transfer money between savings and checking accounts Withdraw cash and write checks
Insured by FDIC Insured by FDIC
Best for
Savings Accounts Money Market Accounts
Lower account balances Large account balances
People that want easy access to funds People looking for higher interest rates

What is a savings account?

A savings account is an interest-earning account opened with a bank, credit union or another financial institution.

Anyone can open a savings account, either at a physical bank or online.

What are the benefits of a savings account?

Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), so the money held within these accounts is safe. The insurance covers balances up to $250,000.

Savings accounts are also liquid, meaning that it's easy to transfer money to and from a checking account.

There is no minimum balance required to open a savings account either, meaning you can store as much or little as you like.

What are the drawbacks of a savings account?

While the interest rates can increase, they are not as high as rates offered by MMAs. And though there's no limit on how much you can withdraw at once, you may be limited to six withdrawals per month before facing a penalty.

What is a money market account?

A money market account is similarly an interest-earning account opened with a bank or financial institution. Just like savings accounts, expect to earn interest on your MMA balance, and like checking accounts, most money market accounts allow you to write checks and use a linked debit card.

Keep in mind that these accounts also come with restrictions that make them less flexible than a regular checking account.

What are the benefits of a money market account?

The interest rates on an MMA are higher than regular savings accounts and miles ahead of checking accounts. They are also insured by the FDIC and NCUSIF (which insures credit union deposits) up to a balance of $250,000.

But perhaps the biggest advantage of a money market account is its liquidity. You can transfer money to and from your checking account. Some MMAs can instantly transfer the money while others require a few business days to process the request.

What are the drawbacks of a money market account?

One downside to money market accounts is that you must meet the balance requirements to get the best APY. Make sure you read the fine print when creating an account; you may think you're getting a good interest rate, but you may be required to deposit a very large sum to qualify.

Further, while MMAs are liquid, there are only so many times a month you can transfer money between your accounts before being charged a fee. This is one of the reasons why the interest rates are better on MMAs compared to other savings vehicles.

You are usually limited to only six transactions per month, but this can vary depending on the bank or financial institution. Some banks may have stricter rules than others.

For example, some bank accounts won't count ATM withdrawals toward your transaction limit, but others may take a harder line. This potential drawback is an issue only if you plan to use the account for frequent transactions.

How is a money market account different from a regular savings account?

First, it's easier to use your money in an MMA via writing checks and withdrawing cash from an ATM. MMAs are as flexible as your checking account, something that is not very common across most savings accounts.

Things aren't so straightforward with most savings accounts. Some do offer the flexibility of a checking account, but many limit the number of transactions between savings and checking, or they require more steps to take cash out, such as processing an electronic transfer and having to call the bank to complete it.

In general, MMAs also offer higher interest rates than savings accounts. They are at least at pace with inflation rates, whereas interest rates within savings accounts are not.

Should I choose a money market or savings account?

This depends.

Start by asking yourself:

  • How much can you deposit for a start? MMAs require a larger minimum balance compared to savings accounts.
  • Does a lower interest rate bother you? If yes, you may be better off with an MMA. If not, a savings account may be better.
  • Do you require the flexibility of a checking account? If yes, then an MMA is your best option.

About the Author

Alex Denholm

Alex Denholm

Freelance Contributor

Alex Denholm is a freelance contributor to MoneyWise.

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