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

Eve Chin, VP Deposit Planning & Strategy, First Republic Bank
December 13, 2021

Money market and savings accounts both offer individuals major opportunities to earn interest but differ in terms of how they work and what each of their advantages is. If you have savings in hand, you may be considering whether to use a money market account (MMA) or a savings account, which can be a challenging decision. Both options are great deposit account options with insurance from the Federal Deposit Insurance Corporation (FDIC), up to $250,000 per depositor, per account, per ownership category. They are also capable of offering you interest rates that help you grow your money. 

The difference between rules and restrictions of money market vs. savings account may factor into which you choose to open, however. In this article, we’ll answer two common questions: What is a money market account? And what is a savings account? Most importantly, we’ll help break down what makes them different and how those differences can impact your financial decision-making. 

Overview: money market account vs. savings account

Money market accounts and savings accounts are well-known savings tools, but each has its own unique benefits. The differences between a money market account and a savings account can be somewhat nuanced, but here are their key features and differences:

 

Money Market Account

Savings Account

Interest Rates

Sometimes higher than savings accounts

Sometimes lower than money market accounts (unless it is considered a high-yield savings account)

Accessibility

Can withdraw cash, and, depending on the account, sometimes offer check writing capabilities

Can withdraw cash and write checks

Balance Requirements

There are balance requires for opening the account, maintaining the account and earning interest

Usually has a minimum opening balance requirement

Safety

FDIC-insured up to $250,000 per depositor, per account, per ownership category.

FDIC-insured up to $250,000 per depositor, per account, per ownership category.

These are just some of the core differences between a money market vs. savings account, however. There are other specifics to each that help differentiate them; Knowing what they are can help you make an informed decision on which to use.

Money market accounts

There are several pros and cons to money market accounts, which are also commonly known as money market deposit accounts (MMDAs).

Broadly speaking, money markets are a form of deposit accounts that, sometimes offer higher interest rates than savings accounts. They also require you to deposit a larger sum of money than a savings account and keep a higher balance than a savings account in order to achieve a higher amount of interest than the typical savings account yields. Some may even impose fees if your account balance falls below a particular threshold.

Here are the major pros and cons to money market accounts:

  • Advantages: High-interest rates, safety and high liquidity
  • Disadvantages: High balance requirements and transaction limits

Some banks, including First Republic Bank, also offer money market checking accounts. These accounts are similar to your standard checking account but may offer higher interest rates in exchange for higher account balances. There are also money market funds, which differ from money market accounts offered by banks.

Money Market Account (MMA) vs. Money Market Fund (MMF)

Money market funds are investment products that can give you access to higher interest rates than most deposit accounts. They are offered by securities institutions and function in similar ways to mutual funds, which pool together funds in order to generate gains (and losses) for shareholders. Most money market funds invest in low-risk investments and may provide you with a slightly higher interest rate than a money market or savings account. In most cases, however, they do not allow you to access funds by way of a debit card or by writing checks, and they are not FDIC-insured.

High interest

Higher interest rates are usually a big advantage for money market accounts, setting them apart from your typical savings account. Money market account interest rates can vary, though, based on the amount of money you deposit and the balance you keep in your account. This means more money in your pocket from compounding interest, which can play a large role in a savvy savings strategy.

Safely store and access your money

Money market accounts are FDIC-insured. This provides you with a bit more confidence and certainty that your money is safe. The stock market and other investment vehicles do not come with this same guarantee, making money market accounts a potentially safer way to generate interest on your money. 

High liquidity

With a money market account, you can access your funds whenever you need them (although there is often a small lag between when you execute a withdrawal and when you receive your money). Still, your money is quite accessible within a money market account, which means you can access these funds in an emergency while still earning high interest on your balance while it’s in your account. 

You may even be able to write checks and use a debit card if you choose a money market checking account. Bear in mind, though, that many banks limit the number of monthly transactions you can make from a money market account.

This flexibility differs from a certificate of deposit (CD), which is another common option for people who want to make the most out of their savings. CDs limit when you can access funds without incurring penalties, thus making them a less flexible option than money market accounts.

High balance requirements  

There are, of course, potential drawbacks associated with a money market account. Chiefly, these take the form of minimum deposit and balance requirements. Compared with a savings account, you’ll likely be required to keep a larger minimum balance in the account. However, if you can reach the required minimum, it can benefit you to set aside a large amount of funds to get a higher amount of interest.

Transaction limits

Like with any savings tool, there are limits to the amount of money you can transfer within your money market account. ​​Your bank will likely limit the number of transactions you can make per month within your account, which means it’s best to set aside money for the long term in these accounts and keep a separate checking account for daily or recurring spending needs.

Savings accounts

Odds are that you’re already familiar with what savings accounts are and how they work. In essence, they’re a form of bank account used to store money that is secure, safe, interest-bearing and designed for long-term growth.

Here are the pros and cons of savings accounts:

  • Advantages: Safety, little or no balance requirements and some liquidity
  • Disadvantages: Low interest rates

Safely store money for long-term savings

It’s important to store the money you’re saving in a secure, safe place for long-term growth. Savings accounts come with FDIC insurance, just like money market accounts, which means they’re a secure way to hold onto your money even during volatile times. 

No or low minimum balance requirements

Many savings accounts have low (or no) minimum balance requirements, unlike money market accounts that require high balances. They can be the right choice for savers with smaller nest eggs.

Potential for high or low liquidity

Savings accounts can be highly liquid, allowing you to access cash quickly and more often, or may come with low liquidity. This depends on the kind of savings account you’ve opened and the bank where you’ve opened the account. Either way, savings accounts make it easy to transfer money between linked checking accounts, which is a net positive for savers.

It is important to note that some banks do offer withdrawal penalties for excessive transfers from savings accounts. But, at the time of this article's publication, the Federal Reserve has indefinitely suspended the regulation limiting transfers from savings accounts to six a month.

Low interest

Compared with a money market account, the interest rate of savings accounts can be a downside. Interest rates are typically lower, so you earn less money on the money you have tucked away. There are some exceptions, however, such as high-yield savings accounts. 

Money market or savings account: Which is right for you?

It’s difficult to say whether a money market saving account, money market checking account or a savings account is right for you. All are great savings options, so the right choice depends largely on your own finances and how you need to access your money. 

A money market account may be more attractive if you are:

  • Interested in reaping the reward of high interest rates
  • Not concerned with minimum balance requirements
  • Risk-averse and want FDIC insurance
  • Interested in accessing funds with a check or debit card through a money market checking account
  • Don’t want to lock up funds as you would with a CD
  • Interested in linking a checking or savings account to your money account

A savings account may be more attractive if you:

  • Don’t want to worry about minimum deposit/balance requirements
  • Are willing to have limited access to funds in favor of growing your savings
  • Want to easily move money between your savings and checking

Achieve your savings goals with First Republic

Your financial goals are unique to your own circumstances and financial plans. No matter what these are, there are options out there to help you reach them, particularly if you partner with the right bank that’s equipped to help you along the way. 

First Republic is uniquely suited to pay attention to your specific needs, understand your personal finances and to provide you with an array of financial products, such as Money Market Savings accounts and Passbook Savings accounts, that can help you get to where you want to be. 

Money market vs. savings account FAQs

Is a money market account a savings account?

A money market account is similar to an interest-bearing account offered through a bank or other financial institution. However, money market accounts differ in terms of interest rates, liquidity and minimum balance requirements, among other factors.

How is a money market account like a checking account?

Money market checking and savings accounts can blend the functionality of a checking and savings account by offering checks, debit cards and ATM access, among other common features.

Can you lose money with a money market account?

You can’t lose money with a money market account, since it is a deposit account, but you may lose with a money market fund because it’s an investment tool that’s not FDIC-insured.

What's the difference between money market accounts and money market funds?

Money market accounts are FDIC-insured deposit accounts, whereas money market funds are investments that function similarly to mutual funds, which are not FDIC-insured. This means that you’re eligible to have your money returned to you with a money market account if the account issuer loses money or can no longer pay you the money in your account. A money market fund, on the other hand, is a type of investment that does not come with the same FDIC protection.

 

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