The biggest difference between a money market and savings account is how people can access their money. Traditional and high-yield savings accounts are available through many banks and credit unions and let people make transfers online and in person. Money market accounts earn comparable rates to traditional savings accounts but make the money more accessible with check-writing privileges.
Imagine not being able to pay for an unexpected car repair or struggling to replace the small countertop microwave in a kitchen. Building savings, whether through an emergency fund or a general savings fund, can help people avoid that financial strain. Understanding the difference between money market vs. savings accounts is the first step in choosing the right account for their needs.
This article discusses the differences between money market and savings accounts and the factors people should consider when choosing between the two.
Table of contents:
| Traditional savings accounts | High-yield savings accounts | Money market accounts | |
|---|---|---|---|
| Earns variable interest rates | |||
| FDIC-insured | |||
| Offers higher APY options | |||
| ATM access | |||
| Check-writing capabilities | |||
| Best for | Building savings on autopilot at a preferred bank | Building savings at a higher rate | Saving money while still having easy access to funds |
A money market account is a type of savings account that earns interest on the money kept in the account. Rates are typically higher than a traditional savings account, but may be lower than high-yield savings accounts.
These accounts typically require minimum deposits and may have daily balance requirements. However, they often come with check-writing privileges or debit cards, making it easier to withdraw money as needed.
Money market savings accounts may not be available at every financial institution. If someone is interested in opening this type of savings account, they may need to shop around with different institutions to find the right fit.
| Pros | Cons |
|---|---|
| Offer check-writing and debit card privileges | May be subject to daily or monthly limits on the number of withdrawals and the amount people can withdraw at once |
| Earn higher interest rates than traditional savings accounts | May not earn as much interest as high-yield savings accounts |
| Most financial institutions that offer money market accounts are FDIC-insured, so the money in the accounts is safe even if the bank defaults | Not available through all banks and financial institutions |
A savings account is a type of bank account that lets people build their savings over time. While they’re one of many places people can put their money, bank-issued savings accounts are some of the most commonly used options available.
These accounts are available at most financial institutions, including:
There are different types of savings accounts available, but most fall into one of two categories:
Opening a savings account can help people put their savings on autopilot while also giving them the potential to earn higher rates than are available in money market accounts.
| Pros | Cons |
|---|---|
| Widely available through most financial institutions | May have minimum daily balance requirements |
| Earn interest on the money deposited in the account | May offer lower returns on investment |
| Low-risk investment and a way to grow money | May increase the temptation to spend due to easy access |
Both types of accounts can help people build their wealth by earning compound interest on the money held in the account. However, there are a few key differences between money market and savings accounts that people should keep in mind.
One of the key differences between savings accounts and money market accounts is the amount of interest or annual percentage yield each account earns.
Typically, money market and traditional savings accounts earn similar rates. However, high-yield savings accounts tend to earn much higher APYs than both traditional and money market accounts, with some accounts, like the PayPal Savings account1, earning an average of nine times more than the national average.2
Both money market and savings accounts can have associated fees. The types of fees could include:
Keep in mind that some banks offer fee-free savings and money market accounts.
Both money market accounts and savings accounts make it relatively easy to access funds. However, they do so in different ways.
Traditional and high-yield savings accounts let people withdraw money in the following ways:
Money market accounts offer more convenience. These accounts let people withdraw money in person or online, just like savings accounts. However, they may also let users write a check or withdraw money with a debit card.
Ultimately, the choice between a savings account and a money market account is a matter of personal preference. Some people may choose to open one account, while others may choose to open multiple savings accounts, including a traditional savings account, a high-yield savings account, and a money market account.
However, since it’s largely up to each individual, there are a few considerations people should keep in mind before opening a new account.
When shopping for money market or savings accounts, it’s important to review the initial deposit requirements for each option before opening one. If the initial deposit is too high or costs more than a person is willing to set aside upfront, it may be better to look for a different account.
Keep in mind that traditional and high-yield savings accounts often have lower initial deposit requirements. Money market accounts, on the other hand, may have higher requirements.
Different types of savings accounts can support people’s financial goals more effectively. It’s worth considering how the account will support those goals and help them build their financial health.
It’s a good idea to establish why someone is opening an account. Some common saving goals include:
The goals should be unique to the individual. Once they establish those goals, they can better examine how each type of savings account could help achieve them.
Savings account interest can compound at different times and earn different rates depending on the bank and the account type. As people start to explore their options, they may want to compare the rates each account offers.
The higher the rate, the more interest they’ll earn on the money they keep in the account. Individuals should take the time to familiarize themselves with the key differences between money market and high-yield savings accounts and the average rates they earn before opening an account.
One important difference between money market and savings accounts is the fees banks charge for each account type. Many banks offer fee-free traditional savings accounts, and some offer fee-free or low-fee high-yield savings accounts.
Money market accounts often have fees associated with the account if users drop below a minimum daily balance or don’t make enough deposits in a given period.
Compare fees in detail and choose an account that offers the fairest deal for the best rates.
Not all accounts offer easy access to the information people need to manage their finances and track their expenses. Before opening an account, people should consider the tools and access options it offers.
If mobile banking or digital wallets are a priority, they may want to choose an account at a bank that prioritizes mobile banking. If they prefer to handle most banking transactions in person, they may want to choose an account that’s available through their local bank or credit union.
Keep in mind that accounts that offer online banking options can be more convenient. People can access these accounts 24/7, even after the bank closes.
The right account can make all the difference in establishing a comprehensive savings plan. By understanding the nuances between money market vs. savings accounts, people can better choose an account that fits their needs and helps them reach their financial goals.
There’s no one-size-fits-all approach to saving, but opening a high-yield savings account could be a great place to start. Start saving with PayPal and earn competitive rates on money kept in the account.
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