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Money Market Account vs. Savings Account: What's the Difference?

By Rebecca Lake · May 23, 2022 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Money Market Account vs. Savings Account: What's the Difference?

If you’re wondering how money market vs savings accounts stack up, it’s wise to learn about how the access, interest, fees, and deposit requirements may vary. These two financial products both offer good ways to stash cash for future goals, but — depending on your particular needs and situation — one may work better than the other.

Money market and savings accounts offer a secure place to keep money you don’t necessarily plan to spend right away. You’ll earn interest, though there may be limits on how often you can make withdrawals. Both kinds of accounts can also be FDIC-insured.

So how do you decide whether a money market or savings account is best? Let us help. We’ll review the following to help you know where to park your moolah:

•  What a money market account is

•  What a savings account is

•  The differences between a money market and a savings account

•  How to know when to use a savings or a money market account

•  The risks with each kind of account

Let’s dig in!

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.

So how does a money market account work?

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.

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 emergency expenses or a wedding you’re planning. But you typically can’t spend freely from a savings account the way you would a checking account.

Access is typically 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 might need to visit a branch if your account is held at a traditional bank or transfer funds from savings to checking online or over the phone. And again, banks can limit the number of withdrawals you’re allowed to make per month.

Differences Between Money Market and 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.

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 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. That can be a little less convenient for some people.

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 $1 (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.

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. 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. Rates may be tiered, with banks paying a higher rate and APY as your balance increases.

When You Should Use a Savings Account

A savings account could be a good fit 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!

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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

•  Vacation

•  Wedding

•  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.

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, protection extends up to $250,000 per depositor, per account ownership type, per 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.

Savings Account

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.

•  You may be penalized for withdrawals over and above your limit.

The Takeaway

Money market accounts and savings accounts can both offer ways to earn interest on your money. 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: Banking with SoFi can help take your money to the next level. With our high yield bank accounts, you’ll earn a competitive APY when you sign up with direct deposit. What’s more, we don’t whittle away your dough with fees. It’s our policy to not charge any monthly, minimum balance, or overdraft fees.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

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.


Photo credit: iStock/akinbostanci

SoFi members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

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