Money Market vs. Savings Accounts


Money Market vs. Savings Accounts: What’s the Difference?

Whether you’re just starting to think about saving for unpredicted circumstances, or exploring whether the money you’ve worked so hard to save could be paying off more, you’ll never regret the money you didn’t spend. 

Most financial experts recommend building up savings equivalent to 3-6 months of your regular expenses (depending on your lifestyle). But with so many choices available in the personal finance space, it can be hard to navigate all the different account types available to find the one that’s right for you. 

Here’s a closer look at two of the most common savings vehicles, money market and savings accounts:

What is a savings account?

A general savings account is a place to safely store your money while earning a bit of interest. As with any interest-bearing account, you give a bank or lender the opportunity to hang on to your money, while they loan it out to other people (which doesn’t make it unavailable to you). In exchange, they “pay you” in the form of interest for letting them borrow the money. 

A savings account is essentially passive. Your interest earnings boost your account balance, and — thanks to the power of compounding interest — your balance gradually multiplies just by sitting in the bank.

What is a money market account?

A money market account is kind of a hybrid between a savings and checking account. Money market accounts typically earn a higher amount of interest than basic savings accounts, making them a good place to store your savings.

The appeal of a money market account is that you can earn higher interest while still being able to access your cash, compared with funds that only perform better when left untouched for decades.

What’s the difference between a money market account and a savings account?

The main difference between a money market account and a regular savings account is how easily you can access your funds.

Money market accounts typically offer you the ability to write checks, or to use an ATM and debit cards for withdrawals, just like with a checking account. However, the number of times you can do this monthly is much more limited than with a checking account.

With a savings account, it’s not as easy to withdraw money. While you’ll typically have ATM access, you likely won’t be able to use a debit card or write checks from your savings account directly. You’d have to withdraw the funds or electronically transfer them first.

Interest rates and minimum balance requirements for each type of account also will vary. Often, money market accounts require higher minimum balance thresholds to get the highest yearly return, which is known as an APY, or annual percentage yield.

What do money market accounts and savings accounts have in common?

Both are insured by the FDIC — meaning they’re equally secure. Both pay interest.

Both allow as many deposits as you want, and both limit you to 6 outgoing transactions per statement cycle – including transfers and withdrawals — by federal law. After that, you may be hit with withdrawal fees.

Which account is better for me? 

A savings account might be your best option when you want to put money away for an emergency fund. A money market account might be preferable if you want to earn higher interest rates, with the ability to write a limited number of checks without having to first transfer funds from another account.

Determining the right option for achieving your savings goals depends on your individual circumstances and priorities. Many people find that having multiple accounts to serve different purposes is what works best for them, and the good news is that you don’t have to limit yourself.

Explore your savings and money market options at Alpha Financial Bank today.

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