Want to save money for your future?
A savings account seems like the obvious choice.
But theres another option out there called amoney market account.
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Its like a hybrid between a savings account and a checking account.
In response to rising inflation, the Federal Reserve said it willincrease interest rates in 2022.
Both money market and savings accounts are expected to benefit from these higher rates.
What Is a Savings Account?
A savings account is a simple bank account that earns interest.
Expect to see rates between 0.01% to 0.07% at traditional banks.
High-yield online savings accounts may earn between 0.3% to 0.8%.
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Thebest savings accountsfeature higher rates and no monthly service fees.
They also offer low or no minimum balance requirements.
The APY is how much interest you earn on your money each year.
Withdrawals and Access to Cash
Every savings account lets you make deposits and withdrawals.
However, a savings account doesnt provide a separate checkbook to access your money.
Thats likely not a big deal.
But it might be if youre a small business owner or simply prefer to write checks.
Account Minimum and Initial Deposit Requirements
Most savings accounts dont require much money to get started.
As little as $1 to $100 is pretty standard at traditional banks.
Some online banks that offer high-yields require a bigger minimum deposit.
Want to earn that 1% interest rate?
You may need to make an initial deposit of $1,000 or more.
However, this isnt always the case.
Want to go digital?
Check out our review of thebest online banks.
What Is a Money Market Account?
A money market account is an interest-bearing savings product.
Its similar to a savings account but it usually comes with its own ATM card and check-writing privileges.
Money market accounts typically earn interest rates ranging between 0.01% to 0.75%.
Rates often increase modestly with higher account balances.
you’re free to open a money market deposit account at many banks and credit unions.
Dont confuse this pop in of account with money market mutual funds.
A money market fund is a jot down of income-oriented mutual fund that invests in short-term debt securities.
A money market fund is a liquid investment and is not insured by the FDIC or NCUA.
Most money market accounts offer tiered APYs.
A money market account can provide easier access to your money because you’re able to write checks.
Minimum initial deposits can be as low as $0 but may range between $500 and $5,000.
Traditional banks often let you get started with $0 down (but the interest rate is low).
On the flip side, some online banks require higher initial deposits (think $1,000 and up).
If a money market accounts APY seems too good to be true, check its minimum balance requirement.
You may need to put down $2,500 or more to make it fetch a super stellar rate.
Then again, theres a handful of online institutions that offer $0 downanda high interest rate.
It really just depends.
Ready to get started?
Hereshow to open a savings accountin a few easy steps.
How Are Money Market Accounts and Savings Accounts Similar?
you’re able to find both of these interest-bearing accounts at nearly every traditional bank and credit union.
Many online banks also offer these accounts, typically with higher interest rates.
Both savings accounts and money market accounts let you earn interest on your deposits though Interest rates are modest.
Both accounts may also limit how many withdrawals it’s possible for you to make per month.
That rule known as Regulation D has been phased out, but some banks may still enforce it.
Both accounts may charge monthly maintenance fees.
You want to avoid these at all costs.
Both money market and savings accounts offer $250,000 worth ofdeposit insurance.
This helps protect your cash in case your bank or credit union fails or goes bankrupt.
For banks, insurance is provided by the Federal Deposit Insurance Corporation (FDIC).
How Are Money Market Accounts and Savings Accounts Different?
Unlike checking accounts though, a money market account isnt intended for everyday purchases.
Its meant to help you save.
Money market deposit accounts also tend to earn more interest than regular savings accounts.
The final key difference is a money market account tends to carry higher balance requirements than a savings account.
You may also need more cash to open a money market account.
Savings accounts, in contrast, are generally easier and less expensive to open.
Money Market Account vs. Savings Account: Which Should You Use?
If you want to start saving money, you really cant go wrong with either of these bank accounts.
But there are a few situations when picking one makes more sense than picking the other.
If youre just starting out, it also makes sense to go with a savings account.
They areeasy to openand usually dont require as much money to get started.
Some banks let you open a savings account with just $1.
A savings account also makes sense if you want one financial institution to handle all your banking needs.
A money market account can also make sense if you want to easily access funds.
A money market account can be a good move if youre saving for a medium-term goal.
In fact, theyre really similar from a consumer perspective.
Do some research on online money market accounts from insured institutions.
Compare interest rates, initial deposit requirements, fees (if any) and other account requirements.
You want to find:
Check out online high-yield savings accounts as well.
Nowadays, theyre very similar to online money market accounts.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
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