Which Is Better, a Savings Account or a Money Market Account?

A savings account requires less of an initial investment than traditional money market accounts, which often require a higher minimum balance. Some savings accounts require minimum balances as low as $50 or $100, while a typical money market minimum balance ranges anywhere from $5,000 to $25,000. If an investor’s money market balance falls below the predetermined minimum threshold, he or she may incur financial penalties. Savings accounts typically serve as an intermediate step between a standard checking account and the more advanced money market account.

While they require a higher minimum balance and may impose stiffer financial penalties, money market accounts generally also offer higher interest rates than savings accounts. The exact interest rates will vary depending on the bank, the minimum balance requirement and the desired amount of return. However, on rare occasions, some savings accounts will offer interest rates higher than some money market accounts. It’s wise to shop around and consider all investment options.

Savings accounts and money market accounts provide excellent security for investors, with the U.S. government’s Federal Deposit Insurance Corporation insuring both accounts up to $250,000. That means if the bank in question would ever fail, the government would repay the investor in full for to $250,000. This lack of risk makes both savings accounts and money market accounts appealing to many conservative investors.

The biggest difference between savings accounts and money market accounts may be accessibility. Savings accounts offer the greater liquidity, meaning the funds are always available. Savings accounts place no limits on the amount of monthly financial transactions. In comparison, money market accounts often limit the number of times investors can access their money, generally holding them to less than five withdrawals per month. However, money market accounts will allow investors to write a certain number of checks as well, creating a unique combination of a checking account and a savings account.

Because of their traditionally higher interest rates, money market accounts offer investors a place to keep larger sums for a longer period, sacrificing some accessibility in exchange for a greater rate of return. Savings accounts, on the other hand, are ideal for investors who desire more flexibility and unlimited access to their funds to cover any unforeseen day-to-day expenses.