Saving money can be difficult if you’re unsure of where to place it. Many people choose to save in a bank, while others keep it in a safety vault. Fortunately, there are several options available if you’re looking to save money. In this article, we will focus on two of these options: money market accounts and savings accounts. We will discuss what you need to know about these accounts and why you may prefer one over the other. Continue reading to determine which one is right for you.
Content Recap:
Money Market Account Explained
Money market accounts, offered by banks and financial institutions, are often referred to as market deposit accounts. They combine features of savings and checking accounts. With a money market account, you have the ability to write checks and make debit card transactions. Additionally, most money market accounts offer savings account features, allowing you to earn monthly interest on your balance.
Pros and Cons of Money Market Accounts
Money market accounts offer a number of advantages, but there are also some drawbacks to consider. Here are some pros and cons to help you decide if a money market account is right for you:
Pros:
- High-interest rates: Money market accounts generally offer higher interest rates compared to traditional savings accounts.
- Easy access to funds: Money market accounts typically provide check-writing privileges and some offer debit cards, making electronic transfers easy. They are also considered liquid, allowing you to withdraw money when needed.
- A safe place for your money: Money market accounts are safe because banks and credit unions that offer them are federally insured.
Cons:
- Limited withdrawals: Money market accounts generally have transaction limits. You can only write a certain number of checks and make a limited number of electronic transfers. Some banks also have stricter limits on ATM withdrawals.
- High account minimums: Money market accounts often require a higher account minimum compared to other types of accounts in order to obtain the best interest rates.
- Monthly fees may apply: If you fail to meet the account minimum, you may incur monthly fees.
When to Use a Money Market Account
If you have medium-term financial goals that can be achieved within a few years but less than a decade, a money market account may be a good choice. Money market accounts offer higher interest rates, allowing your money to grow over time. They are ideal for individuals looking to save for a house or other substantial purchases.
Savings Account Explained
Savings accounts are another option for storing money. Banks typically offer savings accounts in addition to checking accounts. Setting up a savings account is relatively easy, and you can link it to a debit card for easy withdrawals, electronic transfers, and bill payments.
However, the interest rates on savings accounts are generally low to moderate. Additionally, funds from savings accounts are often lent to others for loans, credit cards, and credit lines.
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Advantages and Disadvantages of Savings Accounts
Similar to money market accounts, savings accounts provide a safe place to save money while earning interest. Here are some advantages and disadvantages:
Advantages:
- A safe place for your money: Just like money market accounts, savings accounts are generally considered safe because they are usually insured by the FDIC.
- Low fees and account minimums: Many savings accounts do not have monthly fees and do not require a minimum balance.
- ATM access: Savings accounts are also liquid and provide access to funds through ATMs. Transferring money from savings to checking accounts is also easy.
Disadvantages:
- Lower interest rates: Savings accounts typically offer lower interest rates compared to money market accounts.
- Withdrawal limits: Savings accounts also have transaction limits, meaning you can only make a certain number of withdrawals.
When to Use a Savings Account
If you need funds for short-term use and accessibility is more important to you than higher interest rates, a savings account may be a better option. Savings accounts are suitable for short-term goals that can be achieved within a few years. You can’t make direct purchases with a savings account, but they are easily accessible in case of emergencies.
Money Market Accounts vs. Savings Accounts: At A Glance
Here’s a quick overview of the key features and differences between money market accounts and savings accounts:
We’ve provided a table below to help you identify them quickly.
| Money Market Accounts | Savings Accounts | |
| Key Features | – Has a higher interest rate- Allows you to write checks and withdraw cash- Has a high account minimum- FDIC-insured | – Has low-interest rates- Low to no minimum balance- More liquid- FDIC-insured |
| When to Use | – If you have a high account balance- If you’re looking for high-interest rates | – If you want highly accessible funds- If you have a low minimum balance |
Comparison of Features
Here’s a brief comparison of account features to help you decide which one is best for you.
| Feature | Money Market Accounts | Savings Accounts |
| FDIC/NCUA insurance | Yes | Yes |
| Can earn interest | Yes | Yes |
| Allows you to write checks | Yes | No |
| Gives you ATM access | Yes | Yes |
| Gives you a debit card | Yes | Yes |
| Relative APY | Low | Low |
| Unlimited transactions | No | No |
Aside from those in the table, there’s something else you have to remember about both.
Keep in mind that both money market and savings accounts recommend that you leave your money untouched. Banks do this by limiting the transactions you can make.
While ATM and in-person withdrawals aren’t limited, there are transactions you can only make for a total of six times. These are:
- Check payments
- Debit card purchases
- Electronic transfers
Also, note that the limit of six transactions applies per statement cycle. Exceeding the limit may cause the closure of your account.
How to Use Money Market and Savings Accounts for Financial Goals
The choice between money market accounts and savings accounts depends on your specific financial goals. You are not limited to using only one type of account and can use both to maximize earnings and reach your goals faster.
If you have short-term goals: Savings accounts are ideal for short-term goals, such as vacations and bill payments, as they offer accessibility and immediate availability of funds.
If you have medium-term goals: Money market accounts are more beneficial for medium-term goals as they offer higher interest rates. They may require a higher minimum balance, but they still allow you to withdraw funds earlier if necessary.
If you have long-term goals: Money market accounts and savings accounts are not the best options for long-term goals as they do not impose restrictions on withdrawals. Consider a certificate of deposit (CD) for long-term goals.
Choosing the Right Account for You
Ultimately, the best account for you depends on your needs, finances, and goals. In many instances, starting with a savings account is a feasible option.
It’s beneficial if you want to avoid high balance minimums and fees. Also, you can use a savings account to build your balance over time.
Once you feel like you’re not earning enough, it might be time to add other types of accounts. Like we’ve said, it’ll all boil down to what you want to accomplish with your money.
But, if that’s not enough help, we got you covered. If you still can’t decide on which account to get, here are some questions you can ask yourself.
- Do you want your money close by?
If you do, your options for rates and account types might be limited.
- Are you concerned about interest rates?
If you are, look around for high-yield accounts from online banks.
- Do you need easy access to your funds?
If you do, money market accounts with debit and checkbook access may be your best option.
- Do you prefer limited fund access to build your savings?
If you do, consider enrolling in a savings account to keep your money accessible at all times.
To Wrap Up!
Saving money is easy if you know your options. Both types of accounts have advantages and disadvantages that could make one more helpful than the other.
Whichever type of account you choose, ensure that you considered your needs and goals to find the best fit for you. With this, don’t forget that you have to understand both to help you make the right decision.