Difference Between Money Market and Savings Account (2024)

Most of us believe the future is brighter and more promising than ever, but times change and so does our perception towards life. In fact, future can be very unpredictable and the best example of that is the global pandemic that we all are facing, as the COVID-19 virus sweeps through the world. This made us realize that change is probably the only constant and no matter how much and how well you plan ahead, we can never be fully prepared for what’s coming next. However, you can take control of your financial health by keeping your money safe in easily accessible money market or savings account.

Saving money is not easy, particularly for the individuals whose expenses and spending surpass their earnings. But saving is essential for future preparedness and financial well-being. Well, thinking about saving money is one thing and actually start saving money is whole different story. One of the best ways to save money is to set aside a portion of your income as savings. But, what good is your hard-earned savings if it just sits there and you’re not getting any interest of the money. For this reason, people either park their money in a savings account or a money market account so they can earn some interest, all while keeping their money safe. But which one’s the right choice for saving for the future?

What is Savings Account?

A savings account is the most basic type of bank account at a retail bank that allows you to keep your money securely and typically earn some interest on those savings. It is a bank account for people who do not spend all their income on goods and services; instead, they deposit a portion of their income into this account, keeping aside some money for future emergencies or expenses. Any individual can open a savings account at a retail bank or a credit union, deposit money, and withdraw money anytime when the need calls. The main purpose of a savings account is to help you save and earn interest on those savings. Most banks offer higher interest rates on the savings account and do not impose any limit on the amount that can be deposited. Some banks charge a nominal fee on their savings account, which the banks waive if you maintain a minimum balance each month.

What is Money Market Account?

A money market account (MMA), like savings account, is a savings deposit account maintained at banks and credit unions that allow you to park some of your hard-earned savings and earn some interest on your savings, but often at much higher rates than a savings account. MMA is like an investment fund wherein you participate with other investors. Your dividends come from the current high interest rates which the banks, large corporations, and the federal government pay when they borrow from the money market for their emergency cash requirements. It serves like a savings account, but with a limited number of transactions and limited withdrawals each month. Money market accounts are insured by the FDIC and regulated under the restrictions of Federal Reserve Regulation D. But the MMAs with a higher yield often require you to maintain a higher minimum balance to enjoy higher rates.

Difference between Money Market and Savings Account

Account Type

– A savings account, as the name suggest, is a basic savings account at a bank or a credit union that keep your hard-earned savings for safekeeping and future emergency use. You can deposit some money in your savings account periodically and withdraw when the need arise, while also earning some interest on the money. Money market account (MMA) is like a savings account at banks or credit unions that allow you to deposit your savings and earn some interest, but often at much higher rates than a savings account.

Interest Rate

– A savings account in a bank is insured by a government agency, and the interest rate is mostly fixed. If you put your savings in high yield savings account, you’ll get more returns as they typically offer higher interest rates than normal savings accounts. The interest rate is typically calculated on the closing amount up to a certain point, either monthly or quarterly. In MMAs, the interest rate varies; when the market jumps, you earn more returns on your money. So, interest rates are dependent on the applicable market interest rates.

Flexibility

– A savings account is relatively much easier and less expensive to open. Many banks offer higher interest rates on the savings account and do not impose any limit on the amount that can be deposited, and offer fee waivers if a minimum balance is maintained for a specific period. But savings accounts have limited withdrawals and transfer options, and no linked debit card facilities. Money market accounts, on the other hand, have relatively higher minimum balance requirements and monthly fees, but they provide easy access to funds because of the debit card and checks facilities. And the best part, the money market account is insured by the FDIC, so your money is secured no matter what.

Money Market vs. Savings Account: Comparison Chart

Summary

While money market account functions much like a savings bank account, wherein they allow you to deposit your savings and earn some interest, but often at much higher rates than a savings account. Money market accounts often have debit card facilities for easy access to funds and you can also write checks, unlike savings bank accounts, which typically do not offer debit card and checks facilities. A savings account is relatively much easier and less expensive to open, making it ideal for safekeeping and boost your savings. Money market account is a mix between a savings bank account and a checking account, offering the best of both the worlds.