Money Market Account vs. Savings Account: Pros and Cons

Do you want to put money aside for the future? The obvious choice appears to be a savings account. A money market account, on the other hand, is another choice. It's kind of like a cross between a savings and a checking account. If you've been thinking about opening a savings or money market account, now is a wonderful moment to do it.

The Federal Reserve announced that interest rates will be raised in 2023 in response to growing inflation. These higher rates are projected to benefit both money market and savings accounts. From interest rates to withdrawal limits, we break down all you need to know about these two deposit accounts in this guide.

What is the difference between a savings account and a checking account?

A savings account is an interest-bearing bank account. Traditional banks will provide rates ranging from 0.01 percent to 0.07 percent. Online savings accounts with high yields can earn anything from 0.3 percent to 0.8 percent.

A savings account can be used to pursue a variety of financial goals, such as building an emergency fund or saving for a home.

The top savings accounts offer greater interest rates and don't charge a monthly service fee. They also have low or no requirements for a minimum balance.

Rate of Interest

Traditional savings accounts have an average annual percentage yield (APY) of roughly 0.06 percent. APYs on high-yield savings accounts range from 0.5 percent to 0.8 percent.

The annual percentage yield (APY) is the amount of interest you earn on your money each year.
With a 0.05 percent annual percentage yield, a $5,000 account balance earns $2.50 per year.
With a 0.5 percent annual percentage yield, a $5,000 account balance earns $25 per year.
With a 1.5 percent annual percentage yield, a $5,000 account balance generates $75 per year.
The opening balance requirements for accounts with higher interest rates are usually greater. If you wish to avoid paying a fee or earn a higher APY, you may need to preserve that large amount.

Withdrawals and Cash Availability

You can make deposits and withdrawals from any savings account.
A savings account, on the other hand, does not come with a separate chequebook to access your funds.
That's probably not a major issue. However, if you're a small business owner or simply prefer to write checks, it might be.
Online transfers or in-person withdrawals at your bank are the only ways to get cash out of a savings account.
If both accounts are managed by the same organization, you can use your checking account's debit card to withdraw money from your savings account at ATMs.

Minimum and Initial Deposit Requirements for Accounts

To open a savings account, you don't need much money. Traditional banks accept deposits ranging from $1 to $100.

Some high-yielding online banks need a larger minimum deposit. Do you want to earn that 1% interest rate? You may be required to submit a $1,000 or higher initial deposit.

To qualify for a specific interest rate or avoid a monthly maintenance fee, you may need to retain a certain amount of cash in your account at all times once it is opened.

This isn't always the case, though. A rising number of digital banks, such as Ally Bank and Synchrony Bank, are now offering high-yield savings accounts with no minimum deposit requirements and reasonable rates.

What is the difference between a money market account and a savings account?

A money market account is a type of savings account that pays interest.

It's comparable to a savings account, except it usually includes an ATM card and check-writing capabilities.

Interest rates on money market accounts typically range from 0.01 percent to 0.75 percent. Higher account balances often result in a small rate hike.

Many banks and credit unions offer money market deposit accounts. This is not to be confused with money market mutual funds. A money market fund invests in short-term debt instruments and is a sort of income-oriented mutual fund. A money market fund is a liquid investment that is not insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Rates of Interest

Money market accounts are frequently assumed to provide higher interest rates than savings accounts, although this isn't always the case.

Money market accounts earn just 0.03 percent to 0.09 percent at typical banks, which is little more than a traditional savings account.

APYs as high as 0.4 percent to 0.75 percent can be found at some internet banks.

The majority of money market accounts include tiers of APYs. Typically, the APY will be lower until you reach a particular balance in your account, at which point it will climb.

Withdrawals and Cash Availability

Because you can write checks on a money market account, you'll have easier access to your funds. However, just like a savings account, you may be limited to a particular number of withdrawals per month.

Minimum and Initial Deposit Requirements for Accounts

Initial deposits can be as little as $0, but they can also be anywhere from $500 and $5,000. Traditional banks frequently allow you to start with no money down (but the interest rate is low).

On the other hand, some online banks demand larger initial deposits (up to $1,000).

Check the minimum balance requirement of a money market account if the APY appears to be too good to be true. In order to get a fantastic deal, you may need to put down $2,500 or more.

On the other side, there are a few internet lenders who will lend you money with no money down and a high interest rate.

It all depends on the situation. Do some web research and hunt for the sweet spot between high and low prices.

What Are the Differences Between Money Market and Savings Accounts?

Almost every traditional bank and credit union provides both of these interest-bearing accounts. These accounts are also available from many internet banks, usually with greater interest rates.

You can earn interest on your deposits in both savings and money market accounts, however the rates are low.

You may be limited to a certain number of withdrawals per month with both accounts.

Prior to April 2020, federal legislation compelled banking institutions to limit consumers to six deposit withdrawals each month. Although that law, known as Regulation D, has been phased away, it may still be enforced by some banks.

Some institutions may charge you a fee or impose a penalty if you withdraw more than six times per month.

What Are the Differences Between Money Market and Savings Accounts?

Almost every traditional bank and credit union provide both of these interest-bearing accounts. These accounts are also available from many internet banks, usually with greater interest rates.

Maintenance costs may be charged on both accounts on a monthly basis. These should be avoided at all costs. If you keep a particular value in your account or set up direct deposit, most institutions will forgo the monthly charge.

Deposit insurance of $250,000 is available for both money market and savings accounts. This safeguards your funds in the event that your bank or credit union fails or goes bankrupt.

The Federal Deposit Insurance Corporation provides insurance to banks (FDIC).

Through the National Credit Union Administration, credit unions maintain their own federal deposit insurance.

How to Open a CD

CDs (certificates of deposit) are readily available and inexpensive. In a matter of minutes, you can open a CD online or in person at your local bank or credit union. However, there are a few things to keep in mind throughout the procedure. We'll walk you through them in this article.


It's simple to open a certificate of deposit (CD) with a bank or credit union.

Because you'll have a lot of CDs to pick from, it's a good idea to settle on the type and duration of the CD before going shopping.

Once you've decided what you want, look around for the best interest rate. Rates might differ significantly from one banking institution to the next.

Just in case, be sure any financial institution you're contemplating is federally insured.

Five Steps to Opening a CD

While it's true that opening a CD is simple, you should still spend some time to be sure you're obtaining the appropriate one. The following are five stages to obtaining the ideal CD.

Five Steps to Opening a CD

While it's true that opening a CD is simple, you should still spend some time to be sure you're obtaining the appropriate one. The following are five stages to obtaining the ideal CD.

1. Choose your CD's kind and duration.

It's a good idea to know exactly what you want before going CD shopping, especially given the vast array of options available. When making this selection, the following are the most significant variables to consider:

• The CD's format. CDs are available in a variety of formats. For example, ordinary CDs have penalty for early withdrawal, whereas liquid CDs (a more uncommon variety) do not. There are also changes in how interest is calculated and when you will get your interest payments (which we cover below). Our CD Guide has further information on the various varieties.

• How long do you want your CD to play? CDs can last anything from a few months to ten years or more. The higher the interest rate, the longer you are willing to leave your money in a CD. Make sure, however, that you will not require the funds for the CD's entire duration. Otherwise, you'll be hit with early-withdrawal penalties, which might wipe out whatever profit you've made.

• Whether you want a single account or a joint account. Just like other bank accounts, you can open a CD as a joint account. It's worth noting that the Federal Deposit Insurance Corporation (FDIC) insures Insurance limitations of $250,000 per person per institution are set by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), whereas joint accounts pool their assets up to the $250,000 limit.

You may start looking for the CD that best meets your needs once you've settled on these important elements.

2. Select a Service Provider

You can hunt for a bank or credit union that offers it once you've decided on the type and duration of CD you want, as well as the type of account you desire. You'll probably have a lot of choices. For example, Investopedia's list of Best Bank CD Rates is updated on a monthly basis and includes over 200 financial institutions that sell CDs.

At this stage, there are three important elements to consider, which are stated below in decreasing order of importance:

• Insurance protection. Banks and credit unions are both insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). Check to see if the institution you've chosen is covered by one of the two.
• Rates of interest. Obtain the best interest rate by shopping around. Comparison shopping is worthwhile because the best-paying CDs in the country often pay three to five times the national average rate.
• Penalties for early withdrawal. If you need to get your money in a hurry, you'll almost always have to pay a fee. In this case, choosing a CD with low early withdrawal penalties could save you money.

If you're not sure when you'll need your money, another alternative is to buy a CD with a shorter duration.

3. Finish Your Application

You're ready to apply now that you've settled on a CD and a provider. The procedure for opening a CD is quite simple. Many banks and credit unions allow you to do it totally online, though you may need to visit a physical location in some situations.

You'll be asked for some basic information, such as your address and contact information, regardless of how you apply. If you don't already have an account with that financial institution, you may be required to show identification.

4. Specify how you'd want to be notified of your interest.

If you haven't already, you'll have to make one more vital selection throughout the sign-up process: How would you like to be notified of your interest?

Many financial institutions have two possibilities in this situation. You can either collect all of the interest at the conclusion of the CD's term or get it in monthly or annual installments. If you desire, Choose to receive it at the end to maximize your overall interest.

Arrange for disbursements if you'd like a consistent cash flow from your CD.

5. Put money into the CD

Finally, you'll have to put money into the CD. You'll only do this once—unlike a savings account, you won't be able to deposit money on a regular basis. You can fund your CD by transferring money from another account online or over the phone, or by mailing a check. You'll have numerous alternatives for getting your money out or investing it in a new CD at the conclusion of your CD's term.

Is a CD the Right Choice for Me?

It is debatable. Certificates of deposit come in handy in a variety of scenarios. Perhaps you have cash on hand that you don't require right now but will require in the coming years. A CD with a long enough term could yield you a little more interest while keeping your money secure. CDs are also a fantastic option for risk-averse investors who don't want to risk more volatile investments like equities.

Where can I purchase a CD?

Almost every bank and credit union offers at least one certificate of deposit, and the majority of them offer a variety. So, in addition to your local bank, every other bank or credit union in your town is a viable alternative. CDs are sold by several online banks and normal banks with an online presence. A brokered CD purchased through a brokerage agency or an individual sales person is another alternative.

Should I Choose a CD Term?

It all depends on how quickly you need your money returned. If you're saving for a certain goal or project, knowing when that project will start might help you figure for how long you should keep your CD. On the other hand, if you're merely putting money aside without a specific objective in mind, a longer-term CD may be a better option to optimize your interest rate.

Final Thoughts

It's simple to open a certificate of deposit (CD), and there are many of options. It pays to browse around because interest rates vary so much from one financial institution to the next. But even before that, you should have a general notion of the type of CD you want and how long you are willing to lock up your funds.