There are plenty of ways to stow your money for future use, and two popular options are savings accounts and money market accounts. These financial products have similarities, such as both being interest-earning, insured ways to stash cash for future needs. However, one may better suit your particular situation better than another.
If you’re wondering how to pick between a money market or savings account, you’re in the right place. Here, you’ll get the intel you need, including:
• What is a savings account?
• What is a money market account?
• What are the differences between a savings and a money market account?
• When should you use a money market vs. a savings account?
• What are the risks for savings and money market accounts?
What Is a Money Market Account?
A money market account is a type of deposit account offered by banks and credit unions. These accounts can also be referred to as money market deposit accounts, money market savings accounts, or by their acronym, MMAs.
• Money market accounts allow you to deposit money and earn interest on those deposits.
• The interest rate and annual percentage yield (APY) earned can depend on the bank and the terms of the account.
• If you need to withdraw money from a money market account, you will probably find quite a lot of flexibility. You may be able to do it via ACH transfer, debit card, check, or ATM withdrawal.
While Federal Reserve rules limiting you to six withdrawals per month from a money market account have been suspended, banks can still impose withdrawal limits. If you exceed the allowed number of withdrawals, your bank can charge an excess withdrawal fee for each transaction over the limit. It can be wise to check with your bank about their policies.
Worth noting: If you are wondering about a money market account vs. a money market fund, know that the latter is a type of mutual fund. Since it’s an investment, it is neither insured by the FDIC nor is it backed by the U.S. government.
What Is a Savings Account?
A savings account is also a deposit account that can be used to hold money you don’t plan to spend right away. Banks and credit unions can pay interest to savers, though there can be a significant difference in rates from one financial institution to the next. Online search tools will quickly and conveniently show you some options.
Can you spend money from a savings account? Technically, a savings account is meant for funds you’ll eventually spend. For example, you might open a savings account to hold money for an emergency fund or for a wedding you’re planning. But you typically can’t spend freely from a savings account the way you would a checking account.
Access may be somewhat limited. Savings accounts usually don’t come with a debit card, ATM card, or checks. If you need to take money from savings, you will probably either transfer funds using your financial institution’s website or an app, by phone, or by visiting a branch if your account is held at a traditional bank. And again, banks can limit the number of withdrawals you’re allowed to make per month.
3 Main Differences Between Money Market vs. Savings Account
Both money market and savings accounts are interest-bearing deposit account options. We’ve just noted another similarity: They can both be subject to monthly withdrawal limits. But now, let’s take a closer look at the differences between money market vs. savings accounts. This intel may help you decide which kind of account best suits your particular needs.
1. Access and Flexibility
A money market account can offer an advantage over a savings account when it comes to how you can access your money. Depending on the bank, your options for making deposits and withdrawals might include:
• Debit card
• ATM card
• Paper checks
• Electronic transfers
• Remote deposit capture (for mobile check deposit)
• Teller withdrawals/deposits
Access to a savings account, on the other hand, is usually limited to electronic, ATM, or teller transactions.
With online banks, ACH transfers to and from a linked account at an external bank, wire transfers, mobile check deposit, or mailed paper checks may be your only option for making deposits or withdrawals. Some online banks enable you to make withdrawals from certain ATM networks, however, which adds to their convenience.
2. Account Opening
A number of banks allow you to open both money market and savings accounts online — a nice convenience. However, there may be differences in the minimum deposit requirement. Generally, money market accounts tend to require a higher minimum deposit to open.
So instead of being able to open a new account with a minimal amount (even no money), which may be the case with a savings account, you might need $100, $1,000, or more instead. Again, how much cash you’ll need to open a money market account vs. savings acct can depend on the bank.
3. Interest and Fees
Money market accounts and savings accounts can also differ when it comes to the interest you can earn and the fees you might pay. If you put a regular savings account vs. money market account from an online bank side by side, for example, the regular savings account is more likely to offer a lower rate and APY, or annual percentage yield. In addition, it’s more likely to charge a monthly maintenance fee.
An online money market account, on the other hand, may have no monthly maintenance fee at all and may offer considerably higher interest rates vs. traditional banks.
Additionally, money market accounts often offer tiered rates, meaning the more you have on deposit, the higher the rate you may qualify for.
Similarities Between Money Market and Savings Accounts
Here’s a closer look at ways in which savings and money market accounts are similar.
Both money market accounts and savings accounts pay you interest. When you keep money at a financial institution, they use some of it for other aspects of their business, such as loans to other customers. For the privilege of using some of your funds this way, they pay you interest. Usually, this interest rate will vary with economic factors.
Money market and savings accounts are both likely to be insured by the Federal Deposit Insurance Corporation (FDIC) or NCUA, the National Credit Union Administration. Typically, accounts are insured for $250,000 per depositor, per financial institution, per ownership category.
Offering Accessibility and Liquidity
Unlike time deposits (such as certificates of deposit, or CDs), savings and money market accounts allow you to withdraw funds at will vs. waiting for the maturation date. However, there may be limits on how many outbound transactions you can make per month, depending upon the institution.
When You Should Use a Savings Account
A savings account could be a good fit in several scenarios:
• One good reason to use a savings account is if you want a safe place to set aside money for future expenses. Maybe you are gathering funds to landscape your yard next spring. Or perhaps you just want to be prepared and several months’ worth of living expenses stashed away in case of emergency (which is a very good idea).
• You might opt for a savings account vs. money market account if you don’t necessarily need a debit card, ATM card, or checks to access funds.
• Where you decide to open a savings account can depend on your needs and personal banking preferences. Online banks may appeal to you if you’re looking for long-term savings account options that pay the best interest rates and charge the fewest fees.
On the other hand, you might choose a regular savings account at a brick-and-mortar bank instead if you want to be able to get cash at a teller or drive-thru in a pinch. It’s your call.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.50% APY on your cash!
When You Should Use a Money Market Account
Money market accounts definitely have their appeal, too. They are attractive if you need a low-risk option to put cash away for a rainy day or until you’re ready to spend it on a planned expense. For example, you might consider opening a money market account if you’re saving toward any of these goals:
• Down payment on a home
• New (or used) car
• Education expenses
• Home renovations or repairs
In any of those scenarios, a money market account could offer convenience if you need to write a check or use your debit card to pay for something. If you’re upgrading your kitchen, for example, you could write a check to your contractor from your money market account.
Here’s an overview of the pros and cons of savings vs. money market accounts:
|Pros of Savings Accounts||Pros of Money Market Accounts||Cons of Savings Accounts||Cons of Money Market Accounts|
|Insured||Insured||May be charged for excess withdrawals||May be charged for excess withdrawals|
|Earns interest||Earns interest||Less access||May have higher balance requirements|
|Secure way to save||Secure way to save||No tax benefits||No tax benefits|
|Easy access/withdrawals||May have more fees|
Potential Risks of Using a Money Market or Savings Account
Ready to take a look at the potential downsides of having a money market or savings account? In general, you don’t have too much to worry about. Money market accounts and savings accounts are both quite low-risk since these products can be FDIC-insured.
FDIC insurance applies in the rare event that a bank fails. In that case, as noted above, protection extends up to $250,000 per depositor, per account ownership category, per insured financial institution.
That said, there are some potential drawbacks to these accounts. Being aware of the risks is of course a good idea as you choose the best type of savings account.
Money Market Account
Here are some of the main risks associated with money market accounts:
• Monthly maintenance fees may apply if your balance falls below the required minimum.
• Interest rates are not fixed, so you’re not guaranteed to earn a higher APY.
• Additional withdrawals from a money market account may trigger fees.
• There aren’t tax benefits for saving this way.
Consider these risks before opening a savings account:
• Interest rates may be well below what you could get with a money market account (though typically online banks offer a higher APY than traditional ones).
• Accessing cash in an emergency may be difficult if you don’t have an ATM card and/or your money is at an online bank without an extensive ATM network.
• You may be penalized for withdrawals over and above your limit.
• You won’t enjoy tax benefits for saving with this kind of account.
Recommended: Ways to Earn Interest on Your Money
Opening a SoFi Savings Account
Money market accounts and savings accounts can both offer ways to earn interest on your money while safely stowing it away. Whether you’ll benefit more from a money market account vs. savings account can depend on how much you plan to keep in the account, the interest rate and APY you’re hoping to earn, and how you’d like to be able to access your money. Those fine points can make the difference between growing your money in a way that’s frustrating or fabulous.
On the topic of fabulous: Finding the right banking partner for your funds can enhance your money management.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Is a money market better than a savings account?
A money market account might be better than a savings account for people who want to be able to make purchases from the account using a debit card, write checks against their balances, or withdraw cash at an ATM. When comparing money market vs. savings accounts, it’s important to compare the accessibility, fees, interest rates, and other features.
Can you lose your money in a money market account?
Money market accounts are some of the safest places to keep your money. Even if your bank fails, which happens rarely, you’d still be protected by FDIC coverage up to the applicable limit.
Do you get taxed on money market accounts?
Interest earned in a money market account is considered to be taxable by the IRS. If your money market account earns interest for the year, your bank will send you a Form 1099-INT to report interest income. The bank will also send a copy of this form to the IRS on your behalf.
What is the downside of a money market account?
A money market account may have a higher opening deposit and ongoing minimum balance requirement vs. a savings account. Also, it may have limits on the number of withdrawals you can make.
Is a money market account safer than a savings account?
Both money market accounts and savings accounts are typically insured by either the FDIC or NCUA, depending on your financial institution, for $250,000 per depositor, per account ownership category, per insured institution.
Photo credit: iStock/akinbostanci
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.