Money markets and savings accounts pay you interest while keeping your money safe in the bank. You may not know the differences between a money market vs. a savings account and which is best for you. Understanding the purpose and differences of each account can help you choose which is better for your needs.
Where to Open Your Savings or Money Market Account
Conventional banks with brick-and-mortar branches, credit unions, and online financial institutions offer their clientele money market and savings accounts. Both are protected by the FDIC and offer limited withdrawals per month as per federal regulations.
What is a Savings Account?
Most consumers are familiar with savings accounts. They are ideal for parking cash you plan to use in the short term and often accompany checking accounts.
Savings accounts are ideal for keeping the money you intend to use for purchases outside your daily expenditures. You can prepare for anything, from buying a new piece of furniture to paying for a visit to the emergency room by putting money aside in a savings account.
A Comparison of Money Market and Savings Accounts: Which is Right for You?
As shown in the table above, both money market and savings accounts offer benefits for consumers. Money market accounts tend to have higher interest rates and allow check writing, making them more suitable for special purchases or short-term savings goals. On the other hand, savings accounts are ideal for daily expenditures and emergencies and have no minimum deposit requirements.
When deciding between the two accounts, it is important to consider your daily spending habits, savings goals, and the frequency of withdrawals you need to make monthly. Weighing the differences in interest rates and account requirements against your needs can help you make the right choice for your financial situation.
Benefits of Using a Savings Account
Savings accounts earn your money interest. The interest rate you make depends on what the bank offers when you open your account. Savings accounts do not have interest rates that are locked in. This means that the rate changes depending on market conditions and your bank. The rate fluctuates with the national average interest rate.
The ease with which you can open savings accounts is one of the top reasons consumers choose them. Within a few minutes, whether at a bank branch, over the phone, or online, you can open your account and start funding it.
The convenience of savings accounts extends to the 24/7 access you have via the internet. Most banks offer easy-to-use platforms with intuitive interfaces that make transactions effortless. You also save the time you need to commute to the bank or spend in line at an ATM.
Transferring funds from your checking to your savings account is a further benefit that affords you the flexibility of applying your funds as you see fit. Your checking account covers your daily expenditures, while your savings account earns interest on extra disposable income.
By adding your savings account to a debit card, you can make deposits and withdrawals at an ATM, transfer money via online banking, and send money into your account from other banks or financial institutions.
What is a Money Market Account?
A money market account is an interest-bearing account that offers you the chance to earn a higher rate on your money. Money market accounts come with requirements for the size of your initial deposit or a monthly minimum balance you must adhere to.
Failing to uphold the minimum balance can mean losing out on higher interest or may result in the bank converting your money market account into a checking or savings account.
Money market accounts come with a monthly limit to the number of withdrawals and debit transactions you can make. Like the requirement of retaining a minimum monthly balance, going over the predetermined number of monthly transactions results in a fee.
Benefits of using a money market account
Money market accounts offer higher interest rates than conventional savings accounts. They have insurance protection and provide a debit card with the account.
You can write checks against your money market account without the need for a separate checking account. Your money market account also offers the convenience of transferring money between accounts at your bank.
How Money Market Accounts and Savings Accounts Differ
The first way money market accounts differ from savings accounts is that the former tend to pay higher interest rates. Another difference that plays a significant role in consumers’ choice between the two is the differences in how you access your funds.
With a money market account, you can write a check against the value of your account directly. You may need to transfer funds to your accompanying checking account to meet your check-writing needs when you have a savings account.
How to Decide Which Account is Best for You
Choosing between a money market account and a savings account depends on your everyday habits and personal savings preferences. Opening a money market account might be best for those who want the convenience of writing a few checks against their account and don’t need a conventional checking account.
A money market account would suit anyone interested in making a special purchase. If you were saving for a new boat with your money market account, you could write a few checks for relevant expenses such as a trailer or a jet ski from your money market account balance. This means that you don’t need to move funds from other accounts.
Daily spending habits that call for frequent check writing are best left to a savings account. If you choose to open a money market account, be aware of the balance requirements so that you don’t incur fees or miss out on higher interest rates.
On the other hand, if you’re interested in creating an emergency fund or are planning on making a big-ticket purchase, a savings account might suit you better.
Make the Right Choice
Choosing between a money market account and a savings account can impact your savings on your long-term goals and spending habits.
You should weigh the differences in interest rates between the two types of accounts and between banks against your daily use. Consider the types of purchases you are saving towards and the frequency of withdrawals you need to make monthly.
Doing your research and contemplating your savings goals can help you determine the best account for you. The right account helps you build toward purchasing your dreams or a comfortable retirement. Learn more about finding the best banking services from Finance is us.