Money market accounts and savings accounts are two popular options for saving and growing your money by earning interest. Although these accounts have a few things in common, there are some important differences between money market and savings accounts that may make one a better option than the other.
The best choice will depend on how much funds you have to deposit and your goals. Read on to find out everything you need to know about the most common money market vs. savings accounts.
How Do Savings Accounts Work?
Offered by both banks and credit unions, a savings account is a great way to save and grow your money. Opening a savings account is very simple, and it can usually be done in a single short visit. Once your account is established and funded, you will begin earning interest.
Savings accounts usually have limited withdrawal options. Depending on the financial institution, you may not be given a debit card, ATM card, or check-writing access. Withdrawing money from a savings account is typically done by transferring money to a checking account.
You may also be able to wire money to an account with another institution or submit a withdrawal form to obtain cash.
Savings accounts are insured by the federal government for up to $250,000. They will either be insured by the Federal Deposit Insurance Corporation (FDIC) if the account is with a bank or by the National Credit Union Administration (NCUA) if the account is with a credit union.
How Do Money Market Accounts Work?
Money market accounts are offered by banks and credit unions and work similarly to savings accounts. They are special accounts that usually allow you to earn more interest on your money than with a savings account.
Money market accounts make it very easy to make withdrawals. If you open a money market account, you will most likely receive a debit card and be able to write checks from it. These accounts are subject to federal transaction limits, however, and the number of in-person transactions you can make may be limited to six per month.
An important thing to consider before opening a money market account is that you may be required to maintain a minimum balance. The amount will vary depending on the financial institution. Like savings accounts, money market accounts are also insured for up to $250,000 by either the FDIC or NCUA.
The Difference Between Money Market and Savings
If you’re thinking about opening an account for your savings, it’s important to understand the key difference between money market and savings accounts. Depending on your needs and goals, one account may be a better option than the other.
The amount of interest you will earn with a money market account may be higher than with a savings account. A money market account may require a higher minimum balance, however, to earn the most interest or avoid a monthly fee. Because of this, a savings account may be a better option for those with smaller account balances.
Minimum Deposits and Balance Requirements
Money market accounts typically have higher minimum deposit requirements than savings accounts, and you may need a higher minimum balance to start earning interest and dividends. Savings accounts tend to have lower opening requirements and minimums.
Ways to Access the Funds
Savings accounts typically do not offer a debit card or check-writing access. When you need to access the money in your account, you can transfer funds to your checking account. You can also receive cash directly from your savings account by submitting an in-person withdrawal form.
With a money market account, however, you will be issued a debit card for the account so you can easily make ATM withdrawals. You will also have check writing access.
You can usually make no more than six in-person withdrawals from a money market account per month, but you may make more withdrawals if you use an ATM.
With a savings account, there is often a fee if you go over a certain number of withdrawals, or transfers, per month.
What to Consider: Money Market vs. Savings Accounts
Whether you should open a savings account or a money market account may depend on factors such as your initial deposit and your goals. Here’s a quick recap of the difference between money market and savings accounts for you to consider before you make up your mind.
Money Market Account Considerations
- You may need a minimum deposit to open the account.
- You may need a significant minimum balance to earn interest or avoid fees.
- Ideal for medium or long-term savings.
- Great way to save for a big-ticket item, like a new car, a down payment on a home, or something else.
Savings Account Considerations
- The minimum deposit may be as little as $5.
- You may earn interest on a small balance, such as $25 or $50.
- Ideal for short-term goals as you earn less interest.
- Great way to save for new furniture, home electronics, a modest home improvement project, or something else.
- A savings account is also a good way to start and grow an emergency fund.
Alternative Ways to Save Money
Although savings accounts and money market accounts will meet the savings needs of most, there are some additional savings options to consider.
Certificate of Deposit
A certificate of deposit (CD) is a way to earn interest on a deposit you make with either a bank or credit union. With a CD, you deposit a specific amount at a fixed interest rate for a specific period. The period could be six months, one year, five years, or something else.
If you withdraw the money before the end of the period (the maturity date), you will incur an early withdrawal penalty. Although CDs do offer higher interest rates than savings accounts, access to your money is restricted.
High-Yield Checking Account
A high-yield checking account is similar to a regular checking account, except that it offers interest on the money in your account. Some financial institutions refer to them as “reward accounts.”
High-yield accounts usually have specific requirements that you will have to meet to keep and use the account, like a minimum balance requirement, direct deposit of your paycheck, or something else. A financial institution may even require that you have other accounts with it to qualify.
Money Market Accounts With Baton Rouge Telco
If you’re still weighing up money market vs. savings accounts, Baton Rouge Telco offers both types of accounts with a competitive APY.
Our money market account doesn’t have any monthly fees, and you can conveniently make up to six withdrawals per month. A low minimum deposit of $2,500 is all that’s needed to get started. Click below to learn more about our money market accounts.