How to choose between a savings account and a money market account

Quick insights

• Both savings and money market accounts are deposit accounts that can yield interest for the account holder.
• Savings accounts usually have lower or fewer monthly fees compared to money market accounts.
• Money market accounts typically offer higher interest rates than savings accounts and may come with more spending tools like a debit card.

Opening a savings or money market account can be a step toward financial growth. You can use these financial products to help build your savings for important milestones like buying a house or booking a dream vacation. But how do you know which account option is right for you? This depends on factors such as how much you plan to keep in the account, desired accessibility, account features and more.

Let’s explore a comparison of the features and benefits of savings and money market accounts.

Savings account vs. money market account

Both money market accounts—essentially a type of savings account—and traditional savings accounts offer a range of features to help meet your financial needs. While exact details may differ by bank and product, there are some key differences between savings and money market accounts that you may want to consider before opening one.

Interest rates

The money deposited into a savings or money market accounts can yield interest for the account holder. Rates for both of these account types may fluctuate based on the federal funds rate set by the Federal Reserve.

Money market accounts often offer higher interest rates compared to savings accounts. The Federal Deposit Insurance Corporation (FDIC) provides current average national rates for these types of deposit accounts.

Note that the rate offered can vary based on the bank and financial product. In some cases, a savings account may offer a higher interest rate than a money market account. For example, a high-yield savings account could potentially offer comparable rates to a money market account.

Some banks may offer a higher interest rate to account holders with a larger balance. Money market accounts often feature tiered interest rates, where larger deposits earn higher rates.

Access to funds

Another key difference between these two deposit accounts is how quickly account holders can access their funds.

Savings accounts typically offer an ATM card for withdrawals. If the account doesn’t offer this card, account holders can generally take money out of a savings account by visiting a bank branch, electronically transferring funds to another account or having a check mailed to them. If the account holder doesn’t live near a bank branch, it’s possible it will take several days to access their funds.

Although uncommon, some savings accounts include debit card access, allowing the account holder to move money by making withdrawals, deposits, online transfers and wire payments.

Money market accounts may offer a debit card or check-writing capabilities for ease of access to funds. However, some banks may limit the number of withdrawals each month for both savings and money market accounts and charge fees if the account holder exceeds this limit. That’s why many people may prefer to use a checking account over a savings account for everyday spending.

Minimum balance requirements

Some savings and money market accounts require a minimum opening deposit amount and balance in order to qualify. In many cases, accounts with higher interest rates require you to keep a certain amount of money in the account.

A balance that doesn’t meet the requirements could result in fees, account closure or conversion to another financial product. For example, if the balance of a money market account fell below the minimum balance, the bank could convert it into a checking or traditional savings account.

Fees

While fees may vary for these deposit accounts, generally, the monthly service fees for money market accounts are higher compared to savings accounts. Of course, you may find savings and money market accounts with low or no monthly service fees. These accounts may have other fees, such as wire transfer fees or inactivity fees.

Benefits of a savings account

Generally speaking, savings accounts may appeal to people who want to limit or pay lower fees. While some savings accounts charge fees, you may find that monthly service fees with savings accounts are lower compared to money market accounts.

Savings accounts typically have fewer options for quickly accessing funds, which may benefit those aiming to preserve their savings.

Benefits of a money market account

On average, money market accounts offer higher interest rates than savings accounts, but the rates for both types of accounts can vary by bank and financial product.

Money market accounts typically come with spending tools like a debit card and the capability to write checks, allowing account holders ease of access to their funds.

In summary

Savings and money market accounts are financial products that are designed to help you save money. These accounts generally provide interest earnings for the account holder. On average, money market accounts offer higher interest rates than traditional savings accounts and often include spending tools like a debit card and checks.

Both money market and savings accounts may charge a monthly fee, but you may find that these charges are lower with traditional savings accounts. Additionally, money market accounts may charge a fee if the balance falls below the minimum amount. Some people may prefer that savings accounts typically offer limited spending tools, which may help them resist the temptation to spend their savings in ways that don’t align with their financial goals.

Keep in mind that the features and benefits of money market accounts and savings accounts depend on the specific bank and account.