Money market account vs. savings account: Which is right for me?
Key Takeaways
- Money market accounts and savings accounts are both safe, interest-bearing saving options that are typically FDIC- or NCUA-insured, differing mainly in access and requirements.
- Money market accounts often provide a debit card and check-writing capabilities, allowing direct access to funds.
- Savings accounts usually require withdrawing money in person or transferring it to a checking account to spend it.
- Money market accounts often require higher minimum balances but may pay higher interest compared to savings accounts.
- Spruce offers a high-yield savings account with a competitive APY, no minimum balance requirements, no monthly fees, and tools to help your money grow.
You’ve decided to start putting money aside for your future goals. That’s huge! But where to park your cash is another question—and one that really depends on what fits your needs and your life right now. Savings accounts may be a familiar option. But as you research, you may come across unfamiliar terms such as money market account or high-yield savings account. Just what is a money market account? And what exactly are the differences between a money market account vs. savings account?
Spruce is here to help you understand your options so you can make choices that work for you. Plus, Spruce has several features to help you manage and grow your money, including access to high-yield interest. Let’s take a look.
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Spruce fintech platform is built by H&R Block, which is not a bank. Bank products by Pathward®, N.A., Member FDIC.
What is a money market account?
Money market accounts are a type of deposit account offered by banks and credit unions. They pay interest and often allow you to access your money by using a debit card or making ATM withdrawals. And some even allow you to write a limited number of checks. Some money market accounts are also FDIC insured—that is, your deposits are guaranteed by the federal government up to $250,000.
How is interest in money market accounts compounded?
How often money market account interest is compounded depends on the financial institution, but many money market accounts compound interest daily and credit it monthly. That means the interest gets added to your account at the end of each cycle, giving you more dollars to work for you.
With us so far? Yes? Great, because we’re going to shift directions for just a bit. You may also encounter a “money market fund” in your research. While the name is similar to a money market account, there’s a big difference: Money market mutual funds are investment accounts. They are mutual funds offered by investment fund companies and through brokers. They invest in cash and cash equivalents—think U.S. Treasury bonds or certificates of deposit.
Unlike other traditional mutual funds, money market funds may allow you to withdraw cash, and some even let you write checks. But here’s the rub: Your money is not FDIC-insured in a money market mutual fund. And it’s possible (but rare) it could lose its value if the share price were to drop.
What is a savings account?
A savings account offers you a safe place to store your money through a bank, credit union, online bank, or other financial institution. Deposits are FDIC-insured up to $250,000 if held at an FDIC-insured bank (heads-up to always check the fine print). And many traditional savings accounts pay a modest amount of interest.
Be aware, though, that savings accounts may have limitations. They might impose monthly maintenance charges or set a minimum balance with penalties for falling below the minimum.
Another option worth considering: a high-yield savings account. By definition, these can offer higher interest rates than traditional savings accounts.
Interested in having your money make money? Spruce customers can earn 3.50% APY on their savings to help them reach their saving goals. There are also no minimum balance requirements, no monthly fee, and no limit on transactions between your Savings and Spending accounts.
Money market vs. savings
You work hard for the money you save. So, it’s worth comparing account options carefully. Here’s a closer look at the similarities and differences between a money market account vs. savings account.
Let’s start with similarities.
- Both money market accounts (not money market mutual funds) and savings accounts can be federally insured up to $250,000 by the FDIC or the National Credit Union Administration. So, you can rest assured that the money you deposit is safe.
- Both money markets and savings allow you access to liquid savings, though the access options may differ.
- Both accounts often pay interest.
- The frequency of available withdrawals may be limited. Or if you make withdrawals above a limit, it could trigger fees. (Note: The regulation that required banks to limit “convenient” withdrawals on savings and money market accounts was removed in April 2020, but individual banks can still impose their own limits.)
Now for some differences.
- While each account may require a minimum balance and charge fees if you fall below the minimum, minimum balance requirements for money market accounts tend to be higher.
- Money market accounts may offer direct access to your money via debit cards and limited check writing, whereas savings accounts don’t typically offer these access methods.
Keep in mind, interest rates for money market accounts and savings accounts can vary widely, so it’s a good idea to check the details for any product you’re considering.
What is the difference between a money market account and a high-yield savings account?
The main difference between a money market account and a high-yield savings account is access to your money. A high-yield savings account (HYSA) may require transferring funds to a checking account or withdrawing money in person, just like a traditional savings account. For that reason, it is great for building your emergency fund or saving toward a specific goal—like a first apartment deposit—that you want to add to over time. A money market account (MMA) may also earn competitive interest but may provide added flexibility through check-writing or debit access, making it better suited for savings you may need to tap periodically.
Can I have both a money market account and a high-yield savings account for different savings goals?
Yes, you can have both a money market account and a high-yield savings account for different saving goals—especially when your goals involve different time frames and access needs. You may want to put your emergency fund or long-term savings in a high-yield savings account where it can grow undisturbed. Then perhaps use a money market account for nearer-term goals—like purchasing appliances or a laptop—where occasional access matters.
Spruce offers high-yield interest, saving features, and more
Spruce gives you access to a toolkit with handy features to help you save, pay your bills, and meet your financial goals.
- High-yield interest: You enjoy high-yield interest on your savings, which can help your money grow over time through the power of compounding interest.
- Spruce Saving Goals: When you begin using Spruce, you can set up to two additional saving goals. It’s simple: You identify the goal you want, like an emergency fund or new laptop, and set a dollar target for each. You can even automate your savings, sending money to each goal on a regular basis.
- Budgeting tools: Spruce helps you understand what you are spending and how that matches up with your income. Our budget tracker automatically categorizes your expenses and can send you a notification if your transaction exceeds an amount you’ve set, helping to help you stay on top of your spending.
- Round Up: Automate your savings when round up your debit card purchases and ATM withdrawals to the next dollar and send that money straight to your Extra Savings account.
- FDIC insured: Spruce accounts are FDIC insured through Pathward, N.A. Member FDIC., which means these accounts are insured by the Federal Reserve Bank up to $250,000, the maximum amount permitted by law.*
Looking for more ways to get a handle on your finances? Check out these money saving tips.
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As you work to grow your savings, Spruce helps set you up for success. Get started with Spruce today to give your savings a safe home and room to grow.
This information provided for general educational purposes only. It is not intended as specific financial planning advice as everyone’s financial situation is different.
*Funds are insured by the FDIC on a pass-through basis, subject to applicable limitations, restrictions, and requirements for such FDIC pass-through insurance, when the funds are received in your account. FDIC insurance only protects when an FDIC-insured institution fails. Spruce and H&R Block are not banks or FDIC-insured institutions, but Pathward® N.A. is an FDIC-insured depository institution.
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