Money market accounts (MMAs) and savings accounts are common banking products offered by financial institutions. Both are classified as savings products and may seem similar since they earn interest. However, money market accounts tend to have higher interest rates and require larger minimum balances than savings accounts. Additionally, some MMAs let you write checks and often come with a debit card.
What is a money market account?
A money market account is a deposit account that blends the features of a traditional savings account and a checking account. In general, it offers higher interest but often has a higher minimum balance requirement and initial deposit than a traditional savings account. Money market accounts can include check-writing privileges and a debit card.
What is a savings account?
A savings account is a basic bank account where customers deposit their funds and earn interest. These accounts are considered low-risk and usually offer lower yields than money market accounts. Savings accounts also have lower initial deposits and balance minimums and often feature low or no monthly service fees. To encourage saving and limit access to funds, savings accounts typically are not issued a debit card.
Key differences: savings account vs money market account
Below is a table highlighting the differences between a savings account vs money market account.
| Savings Account | Money Market Account | |
|---|---|---|
| Initial deposit amount | Lower | Higher |
| Minimum balance requirement | Lower | Higher |
| Monthly service fee | Lower; waivable | Higher; waivable |
| Earns interest | Yes | Yes |
| Monthly withdrawal limits | Six but varies per provider | Six but varies per provider |
| Debit card availability | No | Yes; some |
| Check-writing | No | Yes; some |
| Federally insured | Yes | Yes |
| Risk level | Very low-risk | Low-risk |
| Suitability | Short-term goals | Medium to long-term goals |
Interest rates of money market vs savings accounts
Before choosing a business bank, it is essential to review the interest rate offered for a money market vs a savings account.
- Money market account: It typically offers higher interest rates than savings accounts, ranging from 0.5% to over 3%, depending on the bank and the minimum balance required. Some financial institutions provide tiered MMAs, which yield higher returns for larger accounts.
- Savings account: In contrast, a savings account draws lower interest, typically between 0.01% and 0.5% at many banks. Online banks and credit unions may provide more competitive rates. The minimum balance requirements for savings accounts tend to be lower than MMAs.
If your goal is to earn higher interest while meeting minimum balance requirements, I recommend choosing a money market account. However, if you want a simpler account without the pressure of maintaining a high balance, a regular savings account may be a better choice.
Access to funds of money market vs savings accounts
Compared to other types of savings products, such as certificates of deposit (CDs), both money market and savings accounts offer more liquidity.
- Money market account: Highly liquid, it enables easy access to funds and transfers to linked checking accounts. Unlike regular savings accounts, some MMAs also allow check writing and debit card access. However, check with your bank for withdrawal limits, as transfers and withdrawals are typically restricted to six per month under Federal Reserve regulations.
- Savings account: This account type allows easy access to funds through online banking and transfers between linked accounts, though it may have the same monthly withdrawal limits as MMAs. Some banks may not limit inter-account transfers. Generally, there are no minimum balance requirements, and you won’t face penalties for accessing your money.
If you’re looking for more flexibility, such as the ability to write checks or use a debit card, I strongly recommend a money market account that offers these features over a traditional savings account. However, if you prefer higher liquidity without the need to maintain a large balance, a savings account might be more suitable for you.
Minimum balances and fees of money market vs savings accounts
Fees and balance requirements can vary a lot between money market accounts and savings accounts, depending on the financial institution. Here are some general differences:
- Money market account: Typically requires a higher minimum balance, often ranging from $1,000 to $5,000, but it can sometimes reach $10,000 or more. Monthly service fees usually range from $5 to $30. Additionally, if you exceed the monthly limit of six transactions, you may incur transaction costs.
- Savings account: Generally has lower minimum balance requirements, starting as low as $25 to $100. Many providers, particularly online-only banks, may not require a minimum balance or charge a monthly service fee at all. However, if you exceed the monthly withdrawal limit, a transaction fee of $3 to $10 may apply.
If you have a smaller balance and prefer an account with little to no fees, a savings account is likely your best option. Between a money market and a savings account, I believe the latter can be a more cost-effective option if you don’t plan to maintain a large balance or earn high returns.
Risk and insurance of money market vs savings accounts
When discussing risk and insurance, both MMAs and savings accounts are generally considered low-risk options. They are typically insured by the Federal Deposit Insurance Corporation (FDIC) for banks and the National Credit Union Administration (NCUA) for credit unions.
- Money market account: It is designated as low-risk because it is backed by the FDIC or NCUA. If the financial institution fails, your account is protected up to $250,000 per depositor and per institution. Generally, the risk associated with MMAs is slightly higher since they may be invested in short-term securities, such as treasury bills and CDs.
- Savings account: Classified as very low risk, it is also insured by the FDIC or NCUA up to a coverage limit of $250,000 per depositor and per institution, in case of a bank or credit union failure. Regular savings accounts are considered the safest savings vehicles since they are not exposed to market fluctuations.
Overall, I view both MMAs and savings accounts as low-risk options due to the FDIC or NCUA insurance coverage. While some minimal risk may exist, it is very limited, making both types of accounts quite safe.
For more information, read our guide on how FDIC insurance for business accounts works. If you have large funds and need additional FDIC protection, sweep accounts may be a good option.
Suitability of money market accounts vs savings accounts
Before deciding to open a business bank account, it’s important to assess your financial goals and liquidity needs.
- Money market account: It’s suitable for users with medium- to long-term goals who can maintain large balances to avoid monthly service fees and maximize returns. It is also ideal for those seeking flexibility, as some providers allow you to write checks and use a debit card.
- Savings account: It is best for users with short-term goals who may have smaller balances and prefer easy access to their funds, with minimal to no account fees.
If you have higher balances and can meet the minimum balance requirements, I recommend choosing a money market account over a savings account for the best yields. However, if you have lower balances and are looking for a simple account for your short-term goals, a traditional savings account is enough.
Pros and cons of money market accounts vs savings accounts
When comparing money market vs savings accounts, each account has different pros and cons depending on your savings goals, cash reserves, and access needs.
Money market accounts
Pros
- Higher interest rates than traditional savings.
- Check-writing privileges and debit card use are offered by some.
- Easy access to funds.
Cons
- High minimum balance requirements.
- Variable interest rates.
- Less flexible than checking accounts.
MMAs offer better returns than traditional savings accounts, with some providing check writing and debit card access features. However, to avoid monthly service fees or access higher yields (especially tiered MMAs), you’ll often need to maintain a higher minimum balance. Interest rates on MMAs can also be variable based on market conditions. While an MMA offers liquidity, transactions can be limited to six per month, making them ideal for building your savings.
Savings accounts
Pros
- Low risk.
- Fee-free most of the time.
- Lower account balance requirements than MMAs.
Cons
- Low interest rates.
- Limit of six withdrawals or transfers monthly.
- No debit card is issued.
Savings accounts are low-risk options with low initial deposits and minimum balance requirements, often featuring minimal monthly service fees. However, they generally offer lower yields than MMAs and may have similar withdrawal or transfer limits (typically six per month). Additionally, savings accounts do not usually come with a debit card, which limits fund accessibility.
When to choose a money market vs savings account
A money market account is best if you:
- Have a large balance.
- Want higher interest.
- Need check-writing or debit card access.
- Can meet the minimum balance requirement for fee waivers.
A savings account is best if you:
- Have a smaller balance.
- Want a low-maintenance account.
- Do not need check writing or debit card access.
- Need a simple place to store your cash without meeting high minimum balances or fees.
Check out our list of the best business savings accounts to pick what fits your needs.
Frequently asked questions
Is a money market account better than a savings account?
When choosing between savings vs money market accounts, it depends on what you are looking for. If you want higher interest rates, you may earn more with a money market account. However, if you prefer a simple account to park your funds without maintaining a high balance, a savings account may be a better option.
What is the downside of a money market account?
One downside of a money market account is the typically higher minimum balance requirement to waive a monthly service fee or earn the best interest rate. If you cannot maintain the required balance, you risk earning a lower yield and incurring monthly service fees.
What is the difference between a savings account and a money market savings account?
While both savings accounts and money market savings accounts bear interest and are classified as savings products, money market savings accounts usually require a higher minimum balance, offer better returns, and allow check writing than traditional savings accounts.
What is the minimum deposit amount to open a money market account?
To open a money market account, the initial deposit requirement varies depending on the bank or credit union. Some institutions may require as little as $100 for a minimum deposit, while others may require as much as $5,000.
Are my deposits insured in a money market account or savings account?
Yes, both money market accounts and savings accounts are federally insured by FDIC or NCUA for up to $250,000 per depositor and institution, in case of a bank or credit union failure.
Can I have both a money market account and a savings account?
Yes, you can open and manage both types of accounts. Some people use a money market account for short-term savings and higher returns, while some use a savings account for daily savings.
