What’s the Difference Between a Savings Account and a Money Market Account?

Savings accounts and money market accounts give you a way to save money while keeping your funds liquid. Which one is right for you?

What’s the Difference Between a Savings Account and a Money Market Account?

Savings accounts and money market accounts give you a way to save money while keeping your funds liquid. Which one is right for you?

December 28, 2019

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Saving money is crucial to financial wellness. Savings helps you pay for college, large expenses, medical care, and retirement. You have a few options when choosing where to save your money. The two most common accounts are savings and money market accounts. Understanding the difference between the two can help you choose the right one for your needs. 

What is a Savings Account?

A savings account is an account that earns interest on your balance. The interest helps boost your savings. You’ll find savings programs at local physical banks, credit unions, and online banks. 

Because you typically have easy access to your funds, banks may offer low-interest rates on your money. You may find higher interest rate offerings at online banks because they have less overhead eating at their profits.

Where to Apply for a Savings Account

Most banks offer the option to open and fund a savings account online. If you opt for an account at a brick-and-mortar bank or credit union, you can also apply for the account in person.

Savings Account Requirements

Savings accounts are different than your standard checking account, namely the number of withdrawals you can make. Checking accounts don’t have a limit like savings accounts do. In general, six transfers or withdrawals per month is all that’s allowed. This is a federal government law and is the case with any bank. Technically, ATM withdrawals and withdrawals done in person with a teller are excluded from the limit, but many big banks include them in the limit. If you exceed the limit, the bank can charge you a penalty or even cancel your account. 

Other rules some banks enforce on savings accounts include:

  • Minimum opening balance requirements
  • Minimum daily balance requirements
  • A certain number of direct deposits per month
  • A certain dollar amount in direct deposits per month

What are the Savings Account Fees?

Each bank charges different fees and many even offer fee-free savings accounts. Read the fine print and ask about any fees that occur if you don’t meet a specific requirement, such as a minimum account balance. Banks use savings programs for their reserve funds. They often have minimum balance requirements to ensure that they have enough reserves. If you don’t meet that amount, you may pay a fee.

How to Access Your Funds

Where you open your savings account determines how you access your funds. Physical branches give the easiest access including:

  • Withdrawals at the bank itself
  • ATM withdrawals
  • Online transfers/withdrawals

If you have a savings account at an online bank, you won’t have access at the bank branch itself. You must conduct your business online or at a network ATM.

Pros of Savings Accounts 

  • Easy access to your funds
  • Most banks offer several savings accounts
  • May find ways to waive the monthly service fee

Cons of Savings Accounts

  • Limited number of withdrawals each month
  • Typically offer low interest rates

What is a Money Market Account?

A money market account is a cross between a checking account and a savings account. You earn higher interest rates than checking accounts offer. Money market accounts come with a checkbook and an ATM card, giving you easy access to your funds.

Money market accounts have the nickname ‘high yield savings accounts’ because of the higher interest rate they often pay. This isn’t across the board, though; always look at the actual interest rate a bank pays before choosing. You’ll find money market accounts at physical banks, online banks, and some credit unions. 

Because money market accounts typically offer higher APYs, they may also require higher opening and daily balances. Make sure it’s an amount you can comfortably keep to avoid unnecessary fees.

Where to Apply for a Money Market Account

You can apply for a money market account online or in person, if you choose a physical bank or credit union. If you apply online, make sure you have the funds available to transfer to the account upon opening. 

Money Market Account Requirements

Money market accounts often have higher balance requirements. This isn’t the case at every bank, though. You may find the occasional bank that allows an opening deposit as low as $100, but you can find requirements as high as $2,500 to $5,000.

Even though money market accounts come with check writing privileges, you may only write a total of six checks or make a combination of six withdrawals including check writing, ATM withdrawals, online transfers, and in person transfers.

Some banks have other money market account requirements including:

  • Minimum opening deposit requirements
  • Minimum daily balance requirements
  • Minimum direct deposit requirements (either amount or number of deposits)

What are Money Market Fees?

Like savings accounts, you may face a penalty if you exceed the six withdrawal limit. You may also pay fees juts for having the account. Many banks offer ways to waive the fee by keeping a specific balance in the account or setting up direct deposits. Banks use money market account funds to invest elsewhere and loan to other consumers, which is why they often require higher balances and pay higher interest rates.

How to Access Your Funds

Money market accounts make it easy to access your funds including:

  • ATM withdrawals
  • In-person withdrawals at a physical branch
  • Online transfers
  • Checks

Pros of Money Market Accounts

  • Higher interest rates than savings or checking accounts
  • Easy access to your funds (including checks)
  • May find ways to waive the monthly service fee

Cons of Money Market Accounts

  • Large minimum daily balances usually required
  • Limited number of withdrawals each month

Look for FDIC Insured Accounts

Whether you choose a savings account or money market account, make sure the bank is FDIC insured. This protects each depositor up to $250,000.Should the bank go out of business, you will still receive your money. Without FDIC insurance, your funds are at risk.

Savings and money market accounts provide you with a way to save money aside from your checking account funds. The interest rates vary by bank and individual account. Read the fine print and know the account’s requirements in order to choose the one that suits your financial needs the best.

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