Money Market vs. Savings Accounts
A money market account and a savings account have quite a few similarities. Both are low-risk, both are easy to open, and both earn some level of interest in most cases. However, there are differences that can have an impact on the minimum you can deposit and how often you can access your money.
When you have some money saved or a lump sum of cash from an inheritance, you have a variety of options as to where to put that money. There are riskier options, such as investing in the stock market. There are also safer and less risky options like money market and savings accounts.
Money market and savings accounts provide reliable interest on the money in the account. The interest earned is significantly less than what you could make in the stock market, but these investments also do not carry the risk of loss.
Investors who are completely risk-averse might opt to put all of their money in a money market or savings account. Others may diversify their risk exposure by investing a portion of their money into one of these safe assets.
Money market accounts differ from savings accounts in several ways. Here, we explore the details behind each investment vehicle to help you determine which safe-investment tool best fits your needs.
Money Market vs. Savings Accounts
Money Market Accounts
A money market account, which generally pays interest rates similar to higher-yield savings accounts, has features similar to a checking account. Money market accounts can require a higher minimum deposit, and they tend to have stringent balance requirements as well. In exchange, interest rates are usually higher than savings accounts.
A money market account held at a bank is insured by the Federal Deposit Insurance Corp.; if it’s held at a credit union it’s insured by the National Credit Union Administration.
Who Should Consider a Money Market Account?
A money market account might be the right option for you if your priority is a higher interest rate and you want to be able to easily access your money. Most money market accounts allow for writing checks or using a debit card that drafts funds out of the account. Usually, account holders are limited to writing six checks a month. Also, money market accounts are more ideal for people who have at least several thousand dollars to deposit.
Money Market Rates
The following are some of the available money market interest rates, as of November 2018:
- Capital One 360 – 1.85% APY
- VirtualBank – 2.01% APY
- TIAA Bank – 2.13% APY
- Sallie Mae – 2.12% APY
- State Farm – 2.10% APY
A savings account is another safe place to put your unused cash. It offers security and peace of mind in ensuring your money is protected. You can earn some interest on a savings account, but it’s usually minimal, although some high-yield savings accounts offer interest earnings similar to money market accounts. The national average interest rate of traditional savings accounts is only around 0.08 percent.
The idea behind a savings account is that it can help you put your money in a place where you’re less likely to spend it. It can help you meet financial goals by taking that money out of your regular checking account.
Savings Account Rates
Online banks typically have the most competitive interest rates on savings accounts. Examples of savings account rates as of November 2018 are:
- Marcus by Goldman Sachs – 2.05% APY
- Barclays – 2.05% APY
- Synchrony – 1.90% APY
- Chase Savings – 0.01% APY
- Capital One 360 Savings – 1.00% APY
- CIT Bank – 1.55% APY
Choosing the Investment Vehicle That is Right for You
If you want the flexibility to access your money when you need it, a money market account may be better for you, although you should read the terms of the account. If you have more money to put in an account, a money market may also be better since these accounts often have higher minimums. Most money markets will reward larger deposits with higher interest rates as well.
If you don’t need easy access to your money, but you do want security and no risk, a savings account may be the better option. Savings accounts are also better if you have a smaller amount of money to deposit.
Overall, both money markets and savings accounts are fairly similar in that they offer modest returns with essentially no risk.