First of all, be proud of yourself—your money-savvy habits have paid off and now you have some savings to set aside. You have plenty of choices when it comes to managing that hard-earned cash. Two of the most common places to deposit your savings are money market accounts and savings accounts. While these two types of interest-bearing accounts are similar, they are not the same. Here are answers to a few questions you might have about which type of savings account best fits your needs.
What do savings and money market accounts have in common?
Both types of accounts 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 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.
What is the difference between a money market account and a savings account?
The primary difference between a these two types of accounts is how you access your funds. It’s common to find money market accounts that allow you to write checks and use ATM and debit cards.
With a savings account, on the other hand, 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 on each type of account. Sometimes savings accounts offer slightly higher rates than money market accounts—a tradeoff for the flexibility you get with money market accounts.
Which accounts offer the best rates?
Interest rates will vary by bank, but keep in mind that online banks tend to offer higher rates on both savings and money market accounts than those offered by traditional banks. A good next step would be to compare rates published by Bankrate.com or another reputable bank comparison site. Don’t forget to consider things like maintenance fees and minimum deposit requirements.
Can you open a savings or money market account online?
Yes, online savings accounts and an online money market accounts are generally easy to open. With some personal information—and a few clicks—you can be on your way to better money management in no time.
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 how you want to access your funds. A savings account might be best when you want to put cash away for emergencies 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.