Money market accounts, or MMAs, are typically defined as deposit accounts that pay higher interest in exchange for larger deposits, heftier minimum balances and a few more restrictions than what would be typical for standard savings accounts. Find out how money market accounts stand up to savings accounts and where you should keep your savings.
What Is a Money Market Account?
Money market accounts are interest-bearing deposit accounts that typically pay higher rates than your average savings account. A money market account can come with limited check-writing, the ability to use debit cards and make bill payments. It is also likely to be FDIC insured. In these ways, a money market account comes with the benefits of both a savings and checking account.
However, money market accounts usually have higher minimum account balance requirements and higher fees. You might also face higher opening deposit requirements.
5 Differences Between Money Market Accounts and Savings Accounts
Despite their similarities, there are key differences between money market accounts and savings accounts. Here are the biggest differences you’ll encounter:
1. Money Market Account Funds are Easier to Access
“Money market accounts typically have more flexibility in how the account holder can access their funds,” said Melinda Kibler, certified financial planner and portfolio manager with the Palisades Hudson Financial Group Fort Lauderdale, Fla., office. “Many money market accounts allow account holders to write checks, use ATM or debit cards, make electronic transfers or bill payments, or visit a bank for transactions.”
Savings accounts, on the other hand, have tighter restrictions on how you can access your funds. “In contrast, savings accounts typically only allow the account holder to take money out by electronic transfer, visiting the bank or using the bank’s local ATM,” she added.
2. Money Market Accounts Have Higher Minimum Balance Requirements
While your money market account might allow you more flexible access to your money, you might find more of your money tied down by minimum balance requirements. “In many cases, money market accounts require a higher minimum balance than savings accounts,” said Kibler. If you need your savings to be liquid, a savings account might be a safer option for avoiding fees due to carrying a low balance.
3. Money Market Accounts Typically Have Higher Interest Rates
If you can keep your savings above the required minimum balance, a money market account can offer you greater returns on your savings over time. “A higher interest rate through a money market account will make more sense for those with higher account balances and no intentions of depleting the account,” added Kibler.
Rising savings account rates among online banks and credit unions, however, are blurring the lines between money market and savings accounts. “Current interest rates (for money market accounts) are extremely low compared to 10 years ago,” noted Josh Nelson, CFP and CEO of Keystone Financial Services. Overall, he said, “With either of these options you are not likely to earn an exciting interest rate now or in the coming years. This is due to the Federal Reserve holding rates to near zero percent.”
Even if you find a money market account with a competitive rate — and can’t find a comparable savings account option — money market accounts are best used for long-term savings growth. If your plan is to sock away a few hundred dollars for a vacation or some other short-term need, a regular savings account is likely your best bet, as your money won’t earn much on interest anyway, and you’ll get to avoid minimum balance requirements.
4. Money Market Accounts Have Higher Fees
Although the interest you earn on your money market account will compound — as with savings accounts — fees can negate any benefit you might gain from using this type of account. Even the earnings you make over the course of a year using a money market account with a two or three percent interest rate can be wiped out with a few bad fees.
Bank of America’s Rewards Money Market Savings Account charges $12 per month in maintenance fees if you fail to maintain a daily balance of $2,500, for example. U.S. Bank customers are charged $10 per month unless they maintain a $1,000 minimum daily ledger balance or a $2,500 average monthly collected balance.
Keep in mind that inflation coupled with a low-rate money market account can hurt your purchasing power, too. If, for example, you’re earning two percent on your savings but inflation is moving at around four percent, the growth of your money won’t keep pace with the cost of living.
5. Banks Invest Money Market Account Deposits Differently
With a typical savings account, banks are limited in how they can invest the money you deposit. Most often, they use the money you deposit to lend money to other customers. With a money market account, banks can use your funds to invest in treasury notes, certificates of deposit, municipal bonds and other products.
Summary of Differences Between Money Market and Savings Accounts
Best Money Market and Savings Account Rates
More banks, credit unions and online financial institutions are offering higher and higher savings account rates, making money market accounts redundant. In a MoneyRates America’s Best Rates survey released earlier this year, the best rates among savings accounts consistently beat out the best money market account rates.
Although the following accounts represent some of the best savings and money market accounts available, the survey found that the average savings and money market rates have been below 0.20 percent for over two years. These findings emphasize the need for customers to comparison shop account rates among brick-and-mortar and online financial institutions.
|Top 10 Savings Account Rates|
|Sallie Mae Bank||0.800%|
|Capital One 360||0.750%|
|Top 10 Money Market Account Rates|
|Sallie Mae Bank||0.90%|
|Mutual of Omaha Bank||0.85%|
Should You Open a Money Market Account or Savings Account?
Although money market accounts have a reputation for having higher rates than savings accounts, their higher fees and tighter restrictions can make them unsavory financial products. If you opt for an online bank or credit union, you’re liable to find savings accounts that offer better rates and features than money market accounts. If you want only to work with traditional big banks, like Chase or U.S. Bank, you’ll find better rates on a money market account.
Casey Bond contributed to the reporting for this article.