Your saving habits have paid off, and now you have a chunk of change to set aside—but where’s the best place to put it? Fortunately, you have plenty of choices when it comes to saving, and two common places to deposit your funds are money market accounts and savings accounts.
Although savings and money market accounts are similar, they’re not the same. Here are a few answers to questions you may have as you compare and choose the best one for you.
What do money market accounts and savings accounts have in common?
Both types of accounts are deposit accounts that pay interest, and your funds in both are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum amount allowed by law. So, each type of account offers a secure place for your balance to grow.
In addition, both money market accounts and savings accounts allow you to make as many deposits as you want. However, for both accounts there is a limit of six withdrawals or transfers per statement cycle—a limit set by federal law.
Money market and savings accounts are both easy to open. At most banks, all you need is some personal information and an initial deposit, and many don’t require a minimum deposit amount. Online banks offer you the added convenience of opening a savings account or a money market account on your own time, from anywhere you have internet access.
What is the difference between a money market account and a savings account?
The primary difference between a money market account and a regular savings account is how you access your funds. Money market accounts usually allow you to write checks and use ATM and debit cards for withdrawals—like a checking account.
With a savings account, on the other hand, you usually have ATM access, but you can’t write checks. You may need to take money out via electronic transfer or by calling the bank. (If your bank has a physical branch, you may also make withdrawals in person.)
Also, there may be differences in interest rates for each type of account. Sometimes savings accounts offer slightly higher rates than money market accounts—a tradeoff for the flexibility of access you get with money market accounts.
Take a look at the chart below for a quick overview of the two types of accounts:
Which type of account offers the highest interest rates?
You’ll generally find that savings accounts offer higher interest rates than money market accounts, so that’s something to consider if you don’t really need the access you get with a money market account.
That said, with a little research you can find competitive rates for either type of account. Check out sites like Bankrate.com to compare different account features side by side. Make sure you compare APYs (annual percentage yields) so you know you’re comparing apples to apples, and don’t forget to consider things like monthly maintenance fees and minimum deposit requirements.
Ally Tip: Keep in mind that online banks don’t have the overhead of traditional brick-and-mortar banks, so they tend to offer higher rates on both savings and money market accounts.
Which account works best for you?
Now that you’ve compared the two types of accounts, you can decide which is best for your needs. It really comes down to access. Do you just want a safe place to grow your balance while you keep socking money away? Or do you need a little more flexibility in how you access your funds?
A savings account might be best when you want to put cash away for an emergency fund or future major purchases—when you don’t need to access your money regularly.
A money market account might make sense when you want to write checks on an account, but not as many as you would with, say, a traditional checking account. For example, if you were saving for a home with a money market account, you’d be able to write a few checks for related expenses, such as a home inspection or an offer, without having to transfer funds from another account.
Moreover, there’s no rule saying you have to have only one or the other. Many people like to use multiple accounts for different purposes.
Either way, the right bank makes a difference.
Whether a money market account or savings account makes sense for you, or you’re looking for other ways to save, the right bank makes all the difference. Be sure you choose a reputable bank and understand all the terms of any account you consider, including fees and minimum deposit requirements.
At Ally Bank, we’re committed to helping you save with great products, competitive rates, and 24/7 customer service. Visit Ally.com for more information on how to bank with us.