Tuesday, 24 November 2020

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

Money Market Account vs. Savings Account: What’s the Difference?
06 Nov
11:39

money market vs. savings accountiStock

Money market and savings accounts can be good options when you want to deposit your money and keep it in a safe place. If you’re wondering which option is better for your savings, we’ll explain in this post.

First, why save your cash in a savings or money market account at all? Your short-term savings needs a safe place to stay and possibly grow without too much risk. You also want to have it in a place that allows you to withdraw it if or when it’s needed. That’s where a deposit account can come in handy. Not only can you deposit money into the account, but you can also withdraw the funds if a financial emergency comes up.

You can set up a deposit account with your local bank, an online bank or a credit union. Two popular examples of deposit accounts are savings accounts and money market accounts, also known as demand deposits.

With demand deposits, you can withdraw the funds you need (sometimes even the full amount) without needing permission from your bank. Money market and savings accounts can also earn interest so that your funds can grow over time. Often, these two accounts can provide a higher annual percentage yield (APY) than other demand deposits, including a checking account.

Deposit accounts can also be categorized as time deposits. Both certificates of deposit (CDs) and IRA CDs can be grouped into this category. Like money market and savings accounts, these accounts can accumulate interest, but there can be fees tacked on if you withdraw your money early.

Money market vs. savings: 2 key similarities

1. Both carry an interest rate

Whether you open a savings or money market account, you have the potential to earn interest on the money you deposit. Interest rates with both can fluctuate, and while money markets have been known to have higher rates in the past, that’s not always the case today.

There are times when money markets and savings accounts can have similar interest rates. Separately, the interest rates with savings and money market accounts can be lower than with other forms of deposit accounts, including CDs.

2. Both limit withdrawals

Money market and savings accounts can come with some restrictions. You may not have full access to your money since there are limit withdrawals to consider. Due to Federal Reserve Board Regulation D, there may be limitations when withdrawing or transferring your funds, including being allowed up to six transactions every month.

If you fail to meet these requirements or exceed your monthly limit, you can be subject to withdrawal fees or your account being terminated. It’s always important to check with your bank or credit union to learn about its specific terms and potential fees so that you know what to expect.

Money market vs. savings: 2 key differences

While there are some similarities between money market and savings accounts, there are also a few differences of which to be aware. Sure, they allow you to deposit your money and withdraw it if needed, but there are rates and deposit requirements to consider.

Here are some of the main differences between the two accounts that you should keep in mind.

1. Money market accounts typically have higher rates

While the rates with money market and savings accounts can sometimes average out to be the same, money markets can still often offer higher rates. That is usually because money market accounts can require larger deposit amounts.

You can see the difference when you compare rates with savings accounts from brick-and-mortar banks, which can average 0.01% APY. But when you compare online banks, the interest rates for savings and money market accounts are very similar. For example, Marcus by Goldman Sachs offers 2.05% APY with its online savings account, which is just above the 1.85% APY offered by Capital One’s 360 Money Market account for balances greater than $10,000.

But when you look at VirtualBank, an online banking institution, you’ll find it offers a fixed rate for its eMoney Market account. With it, Virtual Bank offers a 0.80% APY for the first year.

2. Savings accounts have lower minimum opening deposit requirements

When you open a savings account or money market, you will most likely need to deposit a minimum amount of money. Each bank and credit union has requirements, but savings accounts usually have a lower minimum than with most money markets. And some savings accounts don’t even require you to deposit a certain amount of money when you open an account.

For example, MySavingsDirect doesn’t require a minimum deposit amount to put your money into one of its savings accounts. But MutualOne Bank requires at least $100 to be deposited for a savings account, while Citizens Access requires $5,000.

Money markets usually require a minimum deposit that can range from institution to institution, but they can often be higher than with a savings account. Also, to get the best rate with a money market account, you’ll usually need to have a certain amount of money in your account. As you may remember, Capital One 360 Money Market provides a high rate of 0.85% APY. While it doesn’t require a minimum deposit when you open the account, you will not get the0.85% APY until you have at least $10,000 in your account. Anything below that will receive 0.85% APY.

Which account is best for you? 4 factors to consider

Both money market and savings accounts have pros and cons to take into consideration before you make a decision. It can seem hard to decipher the right choice for you, which is why researching both is a smart idea. When trying to decide between these two accounts, here are a few important factors to think about:

  1. You have a high opening deposit: Many money market accounts ask for a high opening deposit. In return, they can offer higher rates. This might be a good option for you if you have the funds to make a larger deposit and want to earn more interest.
  2. You’re just starting out: If you don’t have a lot of money to put into a money market account that asks for a high deposit, you may want to consider a savings account. Shop around to find one that doesn’t offer a minimum deposit requirement (or a low amount), and offers a sizable APY so that you can start earning interest as you save.
  3. You want the option to write checks: If you need a lump sum of money and aren’t near an ATM or your bank to withdraw funds, you might want to write a check. Having the option to write out a check from your money market account might be ideal when unexpected financial emergencies arise. Just remember: You may come across some restrictions due to Reg D, such as only having a limited amount of checks you can write in a given time frame.
  4. You want to earn higher interest: While the interest rates can sometimes be close to the same, money markets can still possibly provide higher rates. If you want to maximize your interest earnings, it’s best to shop around to find a money market account that provides you with a higher rate. But keep in mind that you may need to put down a larger deposit or keep a specific amount of money in your account to receive these rates.

Where to find a money market or savings account

Now that you’ve learned the differences between a money market and savings account, you may be interested in finding one to deposit your money to keep it safe. Searching online for these types of deposit accounts is fast and easy, providing you with results in a few minutes.

Finding a money market or savings account doesn’t have to be a complex task. MagnifyMoney has its own savings account marketplace, which can help get you started. Begin by adding your ZIP code, the amount of money you want to put into your account and the length of time you want to keep your money in that particular account. Once you provide your personal information, you can then see results from various banks (online and brick and mortar) and credit unions. You’ll be able to compare the minimum deposit amount and APY to find the best option for you.

Money market and savings accounts are both solid choices for when you want to open a deposit account to put your money away. But there are some pros and cons of both accounts to take into consideration. It’s essential to do plenty of homework on both to see which works best for your financial needs. Once you decide which account you want to open, take your time to shop around for the best rates and inquire about all fees.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Carissa Chesanek

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Source: https://www.magnifymoney.com/blog/earning-interest/money-market-account-vs-savings-account/

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