Key differences between money market and savings accounts
Reasons to consider a money market account
When it comes to earning interest on your money, savings accounts aren’t the only choice. Money market accounts are one of the most popular savings options. If you aren’t familiar with the features of this flexible, alternative savings account, it’s probably time to learn more.
What is a money market account?
Much like other bank deposit options, such as savings or checking accounts, you put money into a money market account and the bank pays interest on your balance periodically according to the terms.
Opening a money market account is simple. In most cases, you provide your personal information, make an initial deposit, and the account is ready to use. Some banks have minimum deposit amounts or balance requirements. Many institutions, including Ally Bank, even offer the convenience of opening and managing your account online, anytime.
Advantages of a money market account
You know a great interest rate and the power of compound interest can make a big difference to your bottom line over time. That’s why you don’t want to keep too big a chunk of change in a low-interest-bearing account, like a checking account, if you don’t have to.
MMAs offer variable rates, which means they can change at any time. That means rates could increase and decrease, but with the right bank, you can be confident your rates will stay competitive.
Keep in mind online banks often offer higher rates than traditional brick-and-mortar banks. Be sure to compare annual percentage yields (APYs), and don’t forget to keep an eye out for things like introductory rates, monthly maintenance fees and minimum balance requirements.
Disadvantages of a money market account
Compared to a savings account, a money market account usually requires a much larger deposit. Regulation D, a federal banking rule, limits withdrawals and transfers on money market accounts to six per statement period. Although Regulation D was revised in 2020, some banks kept limits in place for money market and savings accounts, which makes them less flexible.
Money market accounts vs. savings accounts
You can think of a money market account as a checking and savings account hybrid — an account that combines the features of both. That means you can sock cash away and earn a great interest rate, but you also get check-writing and debit card access. And you can add money to the account whenever you like, unlike with certificates of deposit (CDs).
The primary differences between these account types are how you access your money and interest rates. Typically, money market accounts allow you to both write checks and use ATM and debit cards to withdraw cash. In contrast, savings accounts usually give you ATM access, but you can’t write checks. Whether you’ll get a higher interest rate on a money market or a savings account depends largely on the bank, so shop around to see where you can get the best deal.
Is a money market account right for me?
Due to its strong safety profile, high interest rates and relative flexibility, a money market account can be a great choice when saving for both short-term and medium-term financial goals, including:
If you’re looking for new ways to save toward any of these goals, a money market account could help you get there.
Are money market accounts safe?
Money market accounts at FDIC-member banks are insured by the Federal Deposit Insurance Corporation up to the maximum amount allowed by law, meaning you won’t lose your money in the unlikely event of a bank failure. With a money market account, you also don’t risk losing any of your principal. All in all, an FDIC insured account is about as safe a place to save as you can get.
Find the right money market account for you
As you consider your money market account options, remember, all banks are not created equal. Look for competitive rates, convenient access, clear terms and strong customer service to identify a money market account that fits into your overall savings plan. A money market account can help you safely save for the goals most important to you.