Money market account vs. savings account: Which is best?

There’s no shortage of reasons to save money, including college, retirement, vacations and more. But building your savings can be challenging. If you’ve cut your expenses and managed to save some money, that’s great. The next step is finding a good place to put it. 

When deciding where to keep your money, you’ll probably come across a variety of possible account types. Two of those account types are money market and savings accounts. “Deciding between them may depend on your savings goals and needs,” says Jeff Rose, CFP, founder of a financial education blog.

“Both types of accounts have different rules about maintaining minimum balances,” Rose says. He adds that these factors can be different depending on the bank.

You may even find that choosing between a money market vs. a savings account is difficult. Asking the question, “How is a money market account different from a regular savings account?” is a good place to start.

As you’re considering which account is best for you, consider the difference between a money market vs. savings account. Here’s what you need to know: 

Money market accounts are deposit accounts offered by banks and credit unions. They should not be confused with money market funds, which are investment products.

According to Brynne Conroy, blogger for a personal finance website, a money market account traditionally—but not always—offers higher interest rates than regular savings accounts. These accounts may also require a larger opening deposit or minimum balance. Some savings accounts could offer higher interest rates than you’d find with money market accounts.

But if you’re wondering, “Is a money market account a savings account?” the answer is no. You can think of a money market account as a savings-checking hybrid. With a money market account, you can typically earn interest on your current balance. If the bank offering the account is an FDIC member, then your deposits are insured up to $250,000 per depositor, per account ownership category.

When comparing a money market vs. savings account, one feature that sets money market accounts apart is their flexibility. You can typically access your funds with a debit card, through an ATM or by writing checks. This gives you similar access to the money in a checking 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. Your account could be closed if you regularly go below the minimum.

Not all banks have these requirements, though. When 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 larger deposit may help you qualify for a higher interest rate, allowing your savings to grow faster. Keep these factors in mind when choosing between a money market and savings account.

Still deciding between a money market vs. savings account? Consider your financial goals and how you plan to use your money. The following examples can help you decide which account may be the right fit.

You want to easily access your funds.

As you consider the difference between a money market account and a savings account, note that the check-writing capabilities of money market accounts make them great for accessing your money easily. 

“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 keep a large amount of cash in your checking account to cover unexpected expenses. Instead, you can write a check directly from your money market account or access your funds at an ATM when needed.

You have a large balance.

Since money market accounts can require a higher minimum balance than regular savings accounts, they may be a good fit if you plan to keep enough money in the account to meet the requirement. Maintaining the required balance can help you avoid fees while allowing your savings to continue earning interest. 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 go 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 want the ease of using a debit card and writing checks while still earning interest on your savings, a money market account could be a good option. It offers a combination of savings growth and easy access to your funds when you need them. 

“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.

As you’re choosing between a money market versus a savings account, keep in mind that savings accounts are a basic deposit account where you can keep extra cash. You might wonder how interest works on a savings account. Like money market accounts, you can earn interest on the money you have 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 described above.

There are some key differences between money market accounts and savings accounts to be aware of. 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 may need to transfer them to another account or visit the bank to make a withdrawal.

Another difference is the amount of money needed to open and maintain the account. Savings accounts often have lower minimum balance requirements than money market accounts. You may even be able to find savings accounts with no minimum balance requirement. Capital One 360 Performance Savings accounts are fee-free. Add in no minimum balance requirements and you may have more money in your wallet.

Still unsure whether you want a money market or savings account?

Earning interest is a goal. 

When debating a money market 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 interest rate savings accounts get ever more competitive with money market accounts.”

You don’t plan to touch the money often. 

If you want to start an emergency fund or avoid the temptation to spend your savings, a traditional savings account might be the better option.  

“If you know having access to your funds is not a good thing…then leaving them in a savings account makes more sense,” Rose says. Keeping your emergency fund in a savings account can help you separate those funds from your everyday spending while still allowing your money to grow.

You’re concerned about balance requirements. 

Savings accounts can have small or no minimum balance requirements. This makes them a good option if you’re just starting to save and don’t have a large amount to deposit yet. If you need to make a big withdrawal, like for a home deposit, you don’t have to worry about falling below a minimum balance requirement.

Since these accounts share some features, choosing between them can be hard. Rose says it’s helpful to think about your spending habits and savings goals before deciding where to keep your money.

Remember that you don’t have to choose one account over the other. Having both a savings account and a money market account can help you reach several savings goals at the same time.

If you decide to use both types of accounts, Rose suggests assigning each a specific goal. For example, you could keep part of your savings in a money market account for short-term goals or expenses you may need to access more frequently. With debit card access, ATM withdrawals and check-writing capabilities, you can use those funds when needed while still earning interest.

Rose says you could then consider using a savings account for a longer-term goal, where the money can generate interest until you need it.

“Match the financial goals to the account that will serve you best,” he says.

When deciding between a money market or savings account, be sure to carefully examine each account’s offerings and requirements closely, “comparing things like annual percentage yield (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.

Once you’ve decided which account is right for you, opening one doesn’t have to be complicated. Capital One’s online process lets you open a 360 Performance Savings account in about 5 minutes.