Money market accounts and savings accounts are both great options for long-term savings (i.e., emergency funds, tuition, wedding expenses). They both come with relatively high interest rates, particularly if you bank online. Below, we break down their main similarities and differences.

Differences

Interest rate

The interest rate earned on money market accounts is typically higher than that of savings accounts, though this will vary from bank to bank. According to the FDIC, the national average rate is 0.16% for money market accounts and 0.09% for savings account (as of January 24, 2020). You’ll likely see higher rates on average from online banks than traditional brick-and-mortar stores.

Opening deposit and account balance

You may need to put up more cash for a money market account than a savings account. Some online banks like Ally don’t require minimum deposits or account balances on either type of account, but not all banks are as flexible. For example, Discover doesn’t require a minimum deposit for its savings account, but to open a money market account, you’ll need $2,500.

Check the fine print before you open any account with a bank. Many banks require a minimum daily account balance; if you fall below, you could get charged a fee.

Check-writing and debit card usage

Unlike savings accounts, many money market accounts come with check-writing and debit card privileges. If you need to pay rent to your landlord in checks, for example, this perk will come in handy. However, this will differ depending on the bank. Make sure to inquire if this information is not clear from the bank’s website.

Similarities

Limits on withdrawals and transfers

Both money market accounts and savings accounts impose limits on the number of transactions you can initiate. Per federal law, you are allowed up to six “convenient” withdrawals or transfers per month. This includes Venmo and Zelle transfers, automatic bill payments, and checks, but doesn’t include ATM and in-person bank transactions.

Federally insured

You can rest assured that your money is safe in a money market account or savings account. These accounts will be insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) — meaning that up to $250,000 will be protected in the event of a bank or credit union shutting down.

Great for savings goals

If you’re saving for something in particular, both money market accounts and savings accounts are great avenues. They’re not designed for frequent transactions like checking accounts are. These accounts are best for funds that need to be accessible, but not immediately. This can include college tuition, emergency savings, weddings, mortgage, quarterly tax payments, vacation funds, and more.

What Is a Money Market Account?

A money market account is a hybrid between a checking account and a savings account. Insured by the FDIC or NCUA, it’s a safe place to put your money that offers you relatively high returns and fluidity.

Money market accounts typically offer a higher interest rate than savings accounts, but in exchange for that higher rate, you may need to put up more cash to open the account or maintain a high account balance.

Money market accounts also provide flexibility, as many banks offer check-writing and debit card privileges. The catch is that, like savings accounts, you are limited to six “convenient” transactions per month, which include online transfers and ACH payments.

Pros

  • Higher interest rate than many savings accounts
  • Check-writing and debit card privileges
  • Can withdraw cash from ATMs
  • Insured for up to $250,000 by FDIC or NCUA
  • Good for long-term savings goals

Cons

What Is a Savings Account?

A savings account is a bank account that allows you to earn interest on money you don’t need immediately. It’s ideal for emergency savings and any short-term or long-term goals you don’t want to keep in dollar bills or subject to the volatility of the market.

Insured for up to $250,000 by the FDIC or NCUA, your money will be safe if your bank were to ever shut down. Cash won’t be as fluid in a savings account as it is in a checking account (for example, you’re limited to six transactions per month), but this can work to your advantage. It typically takes a couple of business days to transfer money from bank to bank, and this barrier could help keep impulse spending at bay.

The national average interest rate on savings accounts is 0.09%, but you’ll typically see much more competitive rates from online banks than from traditional banks (often 1.50% to 2.00%). Savings account rates are typically a little lower than those of money market accounts, and lower still than those of CDs, which require you to keep money locked away for a fixed time period in exchange for higher interest.

Pros

  • Higher interest rate than interest-bearing checking accounts
  • Insured for up to $250,000 by FDIC or NCUA
  • Can withdraw cash from ATM
  • Good for long-term savings goals

Cons