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What’s the difference between money market and savings accounts?

Saving money is one of the core tenets of smart personal finance, and there are many ways to go about it depending on your financial situation.

Although the benefits of saving money may not take effect immediately, doing so can still provide a number of benefits, both personal and financial. Not to mention, the peace of mind that comes with saving for the future can have a positive ripple effect on both your financial behavior and your future opportunities.

When it comes to the different ways to save, you may be wondering what type of account is best. Money market accounts and savings accounts can both be good options for savers who are looking for somewhere to stash their cash. Both tend to offer higher returns than a checking account, which means you can earn more money on your savings.

There are a few similarities between money market and savings accounts, as well as several key differences, which we’ll delve into here.

How are money market and savings accounts similar?

Money market accounts (sometimes called money market savings accounts, money market deposit accounts, or MMAs) and savings accounts are both types of savings deposit accounts.

Both types of accounts are backed by the Federal Deposit Insurance Corporation (FDIC), the U.S. government agency that insures bank deposits. Basically if your bank fails or can’t return your money, the FDIC will pay you the lost money up to the insured limit, per account holder, per account ownership. You can learn more about FDIC deposit insurance here.

Withdrawals at bank branches, by mail, phone-initiated, by check, or ATM withdrawals may not count against this limit¹. By contrast, money market mutual funds (sometimes simply called money market funds) are investment accounts that may not come with the same withdrawal limits or government insurance.

Three distinguishing factors between money market accounts and savings accounts

Many banks and credit unions offer savings accounts and money market accounts, but the terms, rates, and conditions can vary widely. As a result, it’s difficult to pinpoint across-the-board rules that distinguish the two types of accounts.

For example, some savings accounts offer a higher interest rate than money market accounts, and you may be able to find either type of account without a minimum initial deposit. Likewise, both could have a monthly fee if you don’t maintain a certain balance.

When there are differences between money market and savings accounts, they tend to relate to the interest rate, deposit amount, and how often you can withdraw money.

1. Interest rates

Money market accounts tend to have higher interest rates than savings accounts. Although money market accounts can offer savers a high interest rate, it may depend on your account’s balance and scale up as your balance increases.

For example, a money market account may start with a lower rate but then increase the rate significantly with a bigger balance.

Although they may not be as high as money market accounts, savings accounts generally have a higher interest rate than a checking account. The high-yield Varo Savings Account offers a 3.00% starting Annual Percentage Yield (APY)² that may even rival some money market accounts.

2. Deposit requirements

Although some money market accounts may not require a minimum initial deposit, many may require you to deposit a large amount of money to open them. With a savings account, however, deposit requirements are generally lower or even $0.

When there is an initial deposit requirement or an ongoing balance requirement to avoid a monthly fee, money market accounts’ requirements may be higher. For example, you may need to keep an average daily balance of $2,500 to $10,000 in your money market account to avoid a monthly maintenance fee.

A Varo Savings Account has no initial deposit or minimum balance requirement; however, you must have at least $0.01 in the account in order to earn interest.

3. Checks or debit cards

Money market accounts often come with a debit card and/or checks, whereas savings accounts don’t. As a result, some money market accounts can sometimes function as a hybrid between checking and savings accounts, but not all offer this feature.

Which type of account is best?

There may have once been a clear-cut distinction between money market accounts and savings accounts—money market accounts offered a higher interest rate and checks or a debit card, but in exchange, you had to keep more money in the account.

That’s increasingly no longer the case. True, you might not get a debit card or book of checks (if the latter is even a concern), but with online high-yield savings accounts, you often get rates that are as competitive as those offered by money market accounts. Not to mention, it’s often quick and easy to transfer money to your checking account.

Pros and cons of a savings account

Pros: When your money is sitting in your savings account, you’ll probably be less likely to spend it. Plus, it could be earning much more interest than if it were in your checking account.

Cons: Savings accounts may come with a few fees. You also may have limited access to these funds as they accrue interest.

Tips: Savings accounts typically have higher interest rates than checking accounts, and it’s worth shopping for one that has a high interest rate.

Pros and cons of a money market account

Pros: There is often no fixed interest rate for money market accounts, so when the money market is doing well, a money market account can earn more interest than other types of bank accounts, especially if you have a higher balance.

Cons: Balance requirements are usually much higher than a savings account. Because there is no fixed interest rate, there are no guarantees that you’ll earn significant interest.

Tips: Because a money market account can earn more interest than a savings account, it’s a great place to store your emergency fund.

If you’re considering switching accounts or opening a new account, assess what makes sense to your financial situation and focus on what matters most—the account’s fees, requirements, interest rate, and benefits. As we said before, saving money is a key component of long term financial health. Regardless of whether you opt for a money market or savings account, the important thing here is that you’re keeping your eye on your money’s future.

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