Money Market vs Savings: Which Account is Best for You?

posted on 08-15-2019

Money market accounts (MMAs) and savings accounts make great places to set aside your emergency fund money and earn some interest income at the same time.

Simply put, these special accounts that you can open through a bank or credit union offer a sweet blend of safety, accessibility, and income that's difficult to find elsewhere.

But are these interest-paying accounts exactly alike? Or is one better than the other when it comes to your own financial situation?

To help you find out which account is right for you, let's talk through the similarities and differences between MMAs and savings accounts. We'll start with a table that shows the comparisons of the two accounts at a glance.

Money Market Vs Savings
FeatureMoney Market AccountSavings Account

Insured by the FDIC or NCUA?

Make withdrawals at any time?XX
Pays you interest?XX
Can you write checks from it?X 
Low minimum deposit requirement? X

Now going into more detail, let's talk about some similarities between MMAs and Savings Accounts.

Both Money Market and Savings Accounts Pay You Interest

Importantly to most people -- especially those looking to put their emergency funds in something safe that actually pays -- both MMAs and savings accounts will give you interest (usually quarterly) for holding your money in the account.

For example, if you were to put $30,000 in a savings account with 1% annual percentage yield (APY), the bank would deposit $75 per quarter -- or more than $300 per year -- into your account, assuming you didn't withdraw any money.

If you were to leave your money untouched for five years, your money would grow to $31,511 -- meaning you'd earn more than $1,500 in interest income without you having to even lift a finger or add a dime to your original balance.

Money Market Accounts and Savings Accounts are FDIC-Insured

As long as they're offered through a Member-FDIC bank, both MMAs and savings accounts are insured by the FDIC for up to $250,000 per account and per cosigner.

That means if you and your spouse are cosigners on an account and the bank holding your money runs into financial trouble, your balance is protected up to $500,000 ($250,000 x 2 cosigners).

There's good news for credit union members too. Most credit unions offer similar insurance coverage to protect your savings through the National Credit Union Administration (NCUA).

(Side note: Money market accounts are not to be confused with money market funds, which act more like investments and can potentially lose money.)

Both Accounts Allow Multiple Withdrawals

CDs pay higher interest yields with the catch that your money be locked in the bank for months at a time. In contrast, both MMAs and savings accounts allow you to flexibly withdraw your money up to six times per month without penalty (and often without fees too!).

Now, let's move on to how savings accounts and money market accounts are different.

Only MMAs Offer Check-writing Convenience

Like a checking account, money market accounts allow you to conveniently write checks to pay for things.

By comparison, savings accounts require you to take an extra step to get access to your funds -- usually by having you transfer money from your savings to your checking account or by going to the bank and manually taking out a withdrawal.

Savings Accounts Are Cheaper to Open and Maintain

While MMAs offer check-writing convenience and sometimes pay higher interest yields, there's one big catch -- they often require significantly larger initial deposits and minimum balances to open the account.

In fact, it's not unheard of for institutions to ask MMA depositors to keep their account balance above $1,000 or even $10,000 in order for them to avoid a monthly fee -- which can range between $10 to $25 per month, depending on the financial institution.

Meanwhile, many banks and credit unions offer savings accounts that you can open with an initial deposit of just $100 (or sometimes even less), and will gladly waive the monthly fee if you keep your balance above a certain amount. Some institutions won't charge a monthly fee even if your savings account were to fall to zero (hopefully never!).

So is a money market account or savings account better for you? In the end it comes down to how much money you plan on keeping in your account and how accessible you want your money to be.

While the check-writing convenience of a MMA could give you faster access to your money in case of emergencies, it may not be a great option if you lack the willpower to leave your money alone so you can keep building your wealth or so it'll be there when you really need it. However, if you'd like to potentially generate higher interest yields on a sizeable sum of cash and write a few checks here and there to pay bills as you skim off the top of your large account balance each month, a money market account may suit you better.

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