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Consumers with extra cash beyond the funds needed for everyday expenses are wise to look to accounts that earn interest and provide easy access to their money for big purchases or emergencies.
Two readily available options are money market accounts and savings accounts. Savings accounts generally lack the minimum deposit and balance requirements many money market accounts have. However, money markets typically offer higher interest rates than regular savings accounts, letting you earn more on your saved money. Financial institutions may limit the number of withdrawals you can make on either type of account, although the federal law that used to mandate these limits, Regulation D, was withdrawn by the Federal Reserve Board in 2020.
Savings account: overview
A savings account is an account maintained by a bank or credit union, in which you earn interest on your balance. Regular savings accounts pay rather low interest, but you can find high-yield accounts that pay much better. Financial institutions such as Discover® Bank, CIT, Live Oak, Upgrade, and Quontic offer savings accounts to consider.
Discover® Online Savings Account
Discover® Online Savings Account
Pros
- No minimum initial deposit amount nor minimum balance must be maintained.
- Liquidity.
- Ease in making deposits and withdrawals.
- ATM cards are typically provided.
- Balances are insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) at banks or by the National Credit Union Administration (NCUA) at credit unions .
Cons
- Interest rates offered usually aren’t the highest available to savers.
- The bank or credit union could charge fees on the account.
- The financial institution may limit the number of withdrawals
- Taxes are due on interest earned.
Money market account: overview
A money market account combines the interest rates of a high-yield savings account and the check-writing capacity of a checking account. These accounts typically have higher interest rates than all but the best high-yield savings accounts, but may have more restrictions. CIT, Quontic, and US Bank are among the institutions that offer money market accounts.
Quontic MMA
Quontic MMA
Pros
- Interest rates are typically higher than those offered for regular savings accounts.
- Balances up to $250,000 per depositor are insured by the Federal Deposit Insurance Corporation (FDIC) at banks or the National Credit Union Administration (NCUA) at credit unions.
- Debit cards are available.
- Accounts come with check-writing privileges.
Cons
- Initial deposits to open an account can be as high as $5,000.
- The bank or credit union could charge monthly maintenance fees.
- Taxes are due on interest earned.
- The financial institution may place limits on the number of withdrawals you can make.
Money Market vs. Savings Accounts: Key Differences and Similarities
| Savings Account | Money Market Account | |
|---|---|---|
Minimum Deposit | Rare | As high as $5,000 |
Minimum Balance | No | Sometimes |
APY | Low at traditional banks | Higher |
Maintenance fees | Sometimes | Sometimes |
Tax due on interest | Yes | Yes |
FDIC/NCUA Insured | Up to $250,000 | Up to $250,000 |
Cards | ATM card | Debit card |
Check-writing | No | Yes |
How often do the interest rates change for each account type?
For both savings accounts and money market accounts, the interest rate is variable and can change at any time.
When is a savings account a better choice?
If the saver wants to save a small amount of money, a savings account is better. With the exception of some high yield accounts, savings accounts rarely require a minimum deposit.
The best saving accounts offers
When is a money market account a better choice?
If the saver is able to meet the minimum balance, doesn’t anticipate needing the funds anytime soon, and is interested in a higher interest rate, a money market account is the better choice. A change for the better for savers is that some financial institutions have relaxed rules on money market accounts and don’t require a large initial deposit or limit the number of withdrawals.
What are the alternatives to money market accounts or saving accounts?
Two solid alternatives to money market or savings accounts are certificates of deposit (CDs) and U.S. Treasury bonds. They can yield a bigger payout due to the higher interest rates they pay.
The caveat is that you must commit to putting the money away for a fixed amount of time—from three months to over one year for CDs. Treasury bonds pay a fixed amount of interest every six months and take 20 to 30 years to mature. However, you can sell the bonds before the maturity date.
TIME Stamp: Differences between high-yield savings and money market accounts are shrinking
How and when you save money depends on many factors, such as your income, extra cash on hand, goals, and timeline. It’s a very individualized proposition. If you’d like to earn interest on additional funds and don’t have a big balance, a regular savings account may be for you. High-yield savings accounts approach the earnings of money market accounts and may have lower fees for lower balances. If a higher yield is your goal, consider a money market account.
Frequently asked questions (FAQs)
How do I find out about fees a financial institution may charge to maintain an account?
You can ask the bank or credit union officer, but be sure to read the fine print on every bank document before you sign on the dotted line. That bank document should also spell out the terms of the account, withdrawals allowed, how much is protected by a federal agency, and any other particulars.
How do I track the interest rate on my account?
Call the institution and ask how and when they notify you of interest rate changes. Also, pay attention to what the Federal Reserve is doing. The Fed is the country’s central bank and sets the federal funds rate, “the interest rate at which depository institutions trade federal funds…with each other overnight.” An increase or a drop in interest rates can impact how much a bank or credit union pays on your balance.
What if I come across a company or individual that claims to pay a lot more in interest on my money than established banks and credit unions do?
Beware, it could be a scam. Put your money in a financial institution whose deposited funds are guaranteed by the FDIC or NCUA. Also consider reporting it to the government’s scams and fraud website.
Where to find a good money market account
CIT, Quontic, and US Bank are among the institutions with the best rates for money market accounts.
Quontic MMA
Quontic MMA
Where to find a good savings account
You’ll find lots of choices. Consult our list of financial institutions that offer some of the best high-yield savings accounts.
How does the economic environment affect money market and savings accounts?
Several ways. The economic environment can lead the Fed to raise or lower the interest rate, which can impact how much you earn on your savings. Savings from neither of these accounts provide a hedge against inflation. And in the event of a recession leading to job loss, you may need to pull money from the accounts to cover your everyday expenses.
Can I get checks and use a debit card with a money market account?
Yes. Two of the benefits of a money market account is that you can write checks on the account and use a debit card to make purchases and pay bills.
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