You’ve done the hard work of building strong saving habits. Now, your effort has paid off and you have a nice chunk of change to set aside. Next step: Figuring out where to put that money. You might consider a money market account or savings account.
Introduction to money market and savings accounts
Both of these accounts allow you to deposit money and earn interest. But which makes more sense for your finances?
What is a savings account?
A savings account is an interest-bearing deposit account that serves as a holding place for your money, whether you're saving for an emergency or a vacation.
What is a money market account?
A money market account is an interest-bearing account that acts like a hybrid between a checking and savings account.
Key differences between money market and savings accounts
Knowing key distinctions between each account can help you decide which works better for your savings goals.
Account features | Savings account | Money market account |
|---|---|---|
Earns interest | Yes | Yes |
FDIC insured (up to $250,000 per depositor per qualifying ownership category at an FDIC-insured bank) | Yes | Yes |
ATM access | Sometimes | Yes |
Debit card and check-writing access | No | Yes |
Higher yield potential | Varies by financial institution | Varies by financial institution |
Minimum balance requirements | Varies by financial institution | Varies by financial institution |
Access to funds | May have monthly transaction limits | Easy access to funds through various methods like ATM withdrawals, checks and electronic transfers. May have monthly transaction limits. |
Fees | May charge fees | May charge fees |
Pros and cons of each account type
While both accounts can be a safe place to store your money, each comes with advantages and disadvantages.
Pros of a savings account:
Interest: You can earn interest on your deposits, even if they are small.
Easy to open and access: Opening a savings account is simple and you can easily access and withdraw the money you deposit.
FDIC insured: You can get FDIC insurance up to the maximum amount allowed by law for savings accounts.
Cons of a savings account:
Variable interest rates: Depending on the market, interest rates may vary.
May have transaction limits: You may not have unlimited withdrawals from your savings account per statement cycle.
May charge fees: Common fees include monthly maintenance fees, minimum balance fees and excessive withdrawal fees. With an Ally Bank Savings Account, you won’t pay fees for maintenance, overdraft, low balance, ACH transfers or cashier’s checks.
Pros of a money market account:
FDIC insured: You can get FDIC insurance up to the maximum amount allowed by law for money market accounts.
Interest rates: You may earn higher returns with a money market account, though it depends on the financial institution's interest rate.
Spend access: Money market accounts allow you to access your money through debit cards and checks.
Additional perks: If you already have an account at a particular financial institution, you may have access to advantages such as fee waivers and account-to-account transfers.
Cons of a money market account :
Minimum balance requirements: Some banks require you to maintain a minimum balance to avoid a monthly fee.
Rate changes: Interest rates for money market funds often vary with fluctuations in the prevailing market.
Which type of account offers the highest interest rates?
Generally, money market accounts offer higher interest rates compared to regular savings accounts, but that's not always the case when compared to high-yield savings accounts. Research competitive rates for either type of account and compare the annual percentage yield (APY), which represents the total amount of interest you can earn in a year.
Which account should you choose?
Ultimately, it's a personal decision. If you need a safe place to grow your balance while continuing to save, a savings account could be right for you. But, if you want a little more flexibility in how you access your funds, a money market account could be the way to go.
The right bank makes a difference
Whether you're looking at a money market account or savings account, the right bank makes all the difference. With an Ally Bank Savings Account, you can access tools to work toward your savings goals, or maybe a Money Market Account is more your speed. Be thoughtful about your financial goals and banking needs, and you’ll set yourself up for success.
