Difference between saving account and money market account

A money market deposit account, commonly referred to as a money market account, is a specific variation of a savings account offered by some banks. Since online banking has evolved, the differences between money market accounts and traditional savings accounts have diminished. Particularly with online-only banks, interest rates can be the same for either type of account. Both types of accounts are safe places to hold funds and gain a bit of interest and are FDIC insured up to $100,000.

Money market accounts should not be confused with money market funds. These are not offered by banks, but by mutual funds or brokers, and are not FDIC insured. This comparison talks about money market deposit accounts.

Comparison chart

	Money Market Account	Savings Account
Introduction	A money market account or money market deposit account (MMDA) is a financial account that pays interest based on current interest rates in the money markets.	Saving accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of an exchange. Customers can set aside some assets while earning interest.
FDIC insured	Yes (up to $250,000); money market funds are not FDIC insured but deposit accounts are.	Yes, $100,000 to $250,000 per depositor.
Average one-year return (U.S.)	0.04%	0.35%
Withdrawal Restrictions	3-6 withdrawals per month.	Typically 3-6 withdrawals a month. Allowed to withdraw only a portion of the account balance.
Withdrawals	Any time	At any time; sometimes funds cannot be withdrawn until 7 days after they are deposited into the account
Minimum balance	$1000 or more	Sometimes; varies by bank
Additional deposits	Any time	Yes, more funds can be deposited into a savings account at any time.
Checks	Yes (for some accounts)	No
ATM card	Yes (for some accounts)	Usually not, but some banks may offer a convenience card.
Interest Rate	1% - 4%.	0 .1% - .5% (but online-only banks can offer up to 1%).
Access to funds	Immediate	Limited
Checking	Usually 3 checks per month	No checking

Access

A significant advantage with money market accounts is that they offer immediate access to the funds via checks or a linked debit card, without first having to transfer any money between accounts. However, there is usually a limit of three withdrawals per month.

The money in a traditional savings account is not directly accessible for spending - it must first be transferred to a checking account.

This video explains more differences between money market and savings accounts:

Minimum Balance

The primary disadvantage of money market accounts is the usual requirement of a minimum balance to open the account. This amount varies, but can be anywhere from $1,000 up to $10,000 or more. There is usually no minimum balance required with a savings account.

Interest Rate

In a money market account, the interest rate can change depending on where the bank has the funds invested. Traditionally, money market accounts have in general offered higher interest rates.

Traditional savings accounts from brick and mortar banks offer very low returns, but this is less so with online-only banks, which are able to offer high-yield savings accounts.

Transfer Fees

There are usually fees for making more than 3-6 transfer out of a money market account each month, but the same applies to savings accounts.

How Funds are Used

Banks have some options with how to use funds deposited into money market accounts. They can invest in certificate of deposit, treasury notes, municipal bonds, and other tightly regulated and safe investments.

With traditional savings accounts, banks are much more restricted in how they can use the funds sitting in those accounts. They’re basically only allowed to use that money for loans, charge interest to the borrowers, and pay a small part of that interest back to the savings account holders.

How to Choose

For most people looking at all the options, the differences between the two types of accounts are not that significant. Generally speaking, money market accounts offer easier access to the funds, and make more sense for saving a large amount of funds on a shorter term, especially if you’d like to write a check directly from that account. Traditional savings account make more sense for long-term saving over the course of years, especially if the initial deposit amount is low, or if a person cannot plan on maintaining the minimum balance.

References

• Money Market Mutual Funds: A Better Savings Account - Investopedia
• Wikipedia: Money market account

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