Money market accounts vs. savings accounts: What's right for you?

If you’re looking to grow your vacation savings or want to sock money away for your dream home, You have plenty of options. Two of the most common are money market accounts (MMAs) and traditional savings accounts. Both are low-risk places to store cash and earn modest returns while keeping your money easy to access.

Both accounts are ideal for short-term goals, emergency funds or any savings you can tap quickly if needed — but they do have some differences. Learn which type of savings account works best for each of your financial goals.

Money market account vs. savings account: What are the key differences?

You can open a money market or savings account at most banks and credit unions. Both types of accounts earn interest and are federally insured, typically up to $250,000 per depositor, per institution. But beyond those similarities, these accounts work differently.

Key differences and features between money market accounts and savings accounts include:

• Access to funds: Savings accounts generally require withdrawals at an ATM or in person at your bank. Money market accounts often allow check-writing capabilities and debit card access for easier spending, similar to a checking account.
• Minimum balance requirements: Money market accounts usually require higher minimum balances to open the account or avoid monthly maintenance fees.
• Interest rates: Money market accounts often offer slightly higher interest rates than traditional savings accounts.
• Rate structure: Many money market accounts use tiered interest rates, where higher balances qualify for higher earnings.
• Fees: Savings accounts typically have lower or no monthly fees. Money market accounts may charge higher monthly maintenance fees, especially if you don’t meet the minimum balance requirement.

Money market and savings account pros and cons

Each type of account has benefits and drawbacks, depending on your financial goals and needs.

Money market accounts

Pros:

• Interest rates may be higher than on a regular savings account.
• Tiered interest rates mean higher interest with higher balances.
• Checks provide easy access to your funds.
• Money in your account is insured.

Cons:

• Some accounts have high minimum balances.
• Some accounts charge monthly maintenance fees.
• Some accounts have monthly transaction and withdrawal limits.

Savings accounts

Pros:

• Money earns interest.
• Money in your account is insured.
• You can access your money at an ATM.

Cons:

• Some accounts may not have high interest rates.
• Some accounts charge fees.
• Some accounts limit the number of transactions each month.

Money market vs. savings account: How to choose?

Will a money market or a savings account better help you reach your financial goals? It depends on your goals and how much you need to save.

A savings account is best if you want a simple, low-maintenance place for short-term savings or smaller balances. Choose a money market account if you want higher earning potential and more flexible access to funds without fully sacrificing the safety of a deposit account.

Check out these real-world examples to help you decide:

Let’s say you’re saving for a dream vacation. Your goal is to save $4,000 to travel to Europe next year. So far, you’ve saved $1,000. You can open a savings account with no fees and an interest rate of 1.00% APY, or annual percentage yield. Or you can open a money market account with an interest rate of 1.50% APY and no fees if you maintain a minimum balance of $5,000. Otherwise, the MMA charges a $5 monthly fee. If the balance climbs above $10,000, the interest rate increases to 2.00% APY.

Since you only have $1,000 so far and your goal is under $5,000, it may make more sense to open a savings account since it doesn't have fees or require a minimum balance.

Now, let's say you’re looking to supplement an emergency fund, with $10,000 set aside. The money market account has a tiered interest rate and pays 2.00% APY for balances over $10,000 and a minimum balance requirement of only $5,000.

In this case, it makes sense to open a money market account since the starting balance is higher, the interest rate is higher and the money will be accessible if you need it for an unexpected expense. How much will $10,000 make in a money market account? With a 2.00% APY, you can make about $200 in one year, assuming the interest compounds daily and you make no additional deposits.

Opening both a savings account and a money market account is also an option. You could use each account for different savings goals: a savings account for your vacation goal and a money market account for your rainy-day fund.

Are you ready to expand your savings options?

Money market accounts and savings accounts are both safe places to store and grow your money. The account you choose to open should reflect your current goals and financial needs. Learn more about money market accounts and savings accounts at Citizens.