Reasons to save money seem to be never-ending—college, emergencies, retirement, vacation. However, about 20 percent of Americans don’t save any of their annual income at all, according to a Bankrate survey. So if you’ve buckled down, cut your expenses and finally saved up a nice chunk of change, great! Now, the next step is finding a good place to put it.
While researching where to store your hard-earned cash, you’ll probably come across two potential account types: money market accounts and savings accounts. Many banks offer both types of accounts, but deciding between a money market account and a savings account may depend on your particular savings goals and needs, says Jeff Rose, CFP®, founder of the financial education blog Good Financial Cents.
“Both types of accounts have different rules about maintaining minimum balances,” Rose says. He adds that these factors can vary depending on the particular bank.
You may even find that making a decision between a money market account vs. a savings account is too hard and you want both types of accounts. (Don’t worry, we’ll get to that later). For now, asking the question, “How is a money market account different from a regular savings account?” is a good place start.
Here’s what you need to know to decide between a money market account and a savings account:
Money market account: Maintain growth and easy access
Not to be confused with money market funds, which are a type of investment, money market accounts are a type of deposit account.
“A money market account, traditionally, has been a high-yield savings account with higher-than-usual opening deposit requirements and/or monthly minimum balance requirements,” says Brynne Conroy, blogger for the women-focused personal finance website Femme Frugality.
You can think of the benefit of a money market account as a savings-checking hybrid. This is an important piece of the money market account vs. savings account story. On the savings side, with a money market account, you can typically earn interest on the balance you have stashed away. If the bank offering the account is FDIC insured, then your deposits are insured up to $250,000 or the maximum allowed by law.
“A money market account makes more sense when you want to maintain liquidity and to grow your savings over time.”
When you’re thinking money market account vs. savings account, note that one of the unique features of a money market account is that you can access funds with a debit card as well as through an ATM and checks—just like you would with your checking account. It’s important to note that federal law does limit certain types of withdrawals and transfers from money market accounts to a combined total of six per month per account. There are no limits on ATM withdrawals or official checks mailed to you. You can also make an unlimited number of deposits.
Money market accounts may require that you open the account with a minimum amount, as well as maintain a minimum balance. If your balance falls below the required minimum, you could be charged a fee, and your account could actually be closed if you regularly dip below the minimum.
Not all banks have these requirements, though. When considering the difference between money market accounts and savings accounts and shopping for a money market account, you may be able to find one with no minimum balance requirements and with tiered interest rates, Conroy says.
A Discover Money Market Account, for instance, doesn’t charge account fees, including minimum balance fees.1 Plus, a larger deposit can put you in a higher interest rate tier, allowing you to earn even more on your savings. These are all things that can guide you when deciding between a money market account and a savings account.
Still need some help weighing money market account vs. savings account? See if any of the following scenarios jump out as describing your financial needs.
Go with a money market account if…
- You want to easily access your funds.2 As you consider the difference between a money market account and a savings account, note that the debit and check-writing capabilities of money market accounts make them great for accessing your money conveniently. “A money market account makes more sense when you want to maintain liquidity and to grow your savings over time,” Rose says. Need to pay the handyman for a new water heater or access cash from your emergency fund? You don’t have to worry about keeping a ton of cash in your checking account—simply write a check directly from your money market account, or stop by the nearest ATM.
- You have a large balance. Since money market accounts can require a higher minimum balance than regular savings accounts, it might be a good fit for you if you plan to keep enough money in your account to meet the requirement and avoid fees. Plus, if you plan to make large withdrawals from your account, it’s important that you keep enough funds in it so that you don’t dip below the minimum balance. “Know that if you’re not meeting minimum balance requirements, you’re more likely to have to pay a monthly maintenance fee,” Conroy says.
- You want one account with the flexibility of two. If you’re liking the ability to swipe a debit card and write checks—but are also looking to earn interest on the cash you’re parking in the account—then a money market account could be for you. “A money market account may offer you the higher interest rates you would get in a savings account, plus the debit card and check-writing abilities of a traditional checking account,” Conroy explains.
Savings account: Get your nest egg started
Savings accounts are a basic deposit account where you can keep extra cash. Like money market accounts, you can earn interest on the money you have parked in the account. If you have a savings account with a bank that is FDIC insured, you’ll have that same insurance on your deposits as was described above.
Savings accounts are also subject to the same limit on withdrawals and transfers, Conroy notes. Similar to money market accounts, there are no limits on ATM withdrawals or official checks mailed to you.
Now on to the differences between money market accounts and savings accounts. For one, you can’t write checks or pay for things with a debit card when using your savings account. To access your funds, you’ll need to transfer them to another account, visit the bank or ATM to make a withdrawal or withdraw via official bank check.
Another key difference between a money market account and a savings account: The minimum deposit to open a savings account and ongoing minimum balance required for savings accounts may be lower than money market accounts. You may even be able to find savings accounts with no minimum balance requirement.
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Still deciding between a money market account and a savings account?
Go with a savings account if…
- Earning interest is a goal. When debating money market account vs. savings account, know that some savings accounts could offer higher interest rates than you’d find with money market accounts. “Historically, money market accounts have offered higher interest rates in exchange for higher minimum balance requirements,” Conroy says. That’s not necessarily the case anymore, she notes. “The lines are blurring as high-yield savings accounts, typically those offered by online-only banks, get ever more competitive with money market accounts.” The Discover Online Savings Account, for example, offers a competitive interest rate and no minimum balance requirement. Plus, there are no account fees.1
- You don’t plan to touch the money often. Though it’s easy to transfer money in and out of a savings account, there are more limitations to accessing your money if you’re considering the difference between a money market account and a savings account. So if you’re working on building up your emergency savings or simply don’t want to be tempted to dip into your funds regularly, a traditional savings account might be the better option. “If you know having access to your funds is not a good thing because [you tend to spend more than you should], then leaving them in a savings account makes more sense,” Rose says.
- You are concerned about balance requirements. Since savings accounts can have small or no minimum balance requirements, this account type could be right for you if you’re just getting started building a nest egg and don’t have a ton to deposit yet. If you plan to make a big withdrawal, such as for a down payment on a car or security deposit on your new apartment, you don’t have to worry about dipping below a minimum balance.
How to use both accounts to your advantage
Because savings accounts and money market accounts have some similar features, deciding between a money market account and a savings account can be difficult. You’ll need to look at your banking habits and financial goals when choosing where to put your money, Rose says.
But remember, you don’t necessarily have to choose one account over the other. Having both a savings account and a money market account can help you reach various savings goals simultaneously.
If you decide to use both types of accounts, Rose suggests assigning each a specific goal. For example, you could keep a portion of your savings in a money market account so the money is easily accessible for shorter-term goals (saving for the holidays, anyone?) and more frequent expenditures for which you might use your money market debit card, ATM access or checks.
Rose says you could then consider using a savings account for a longer-term goal (the kids will grow up and go to college some day), where the money can sit and generate interest until you need it further down the road.
“Match the financial goals to the account that will serve you best,” Rose says.
Money market account vs. savings account: The best decision for you
When deciding between a money market account and a savings account, be sure to carefully examine each account’s offerings and requirements closely, “comparing things like APY, monthly maintenance fees, minimum balance requirements and any other fees that may be associated with the account,” Conroy says.
At the end of the day, whichever account you choose (or both!) should help you reach your financial goals and money management success.
1Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.
2Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.