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

Key takeaways

Savings and money market accounts both earn interest, but how much varies between accounts.
A money market account typically requires a higher minimum balance than a savings account.
A savings account can be ideal for smaller, short-term financial goals. A money market account may be better for slightly longer-term, higher-value goals.

You can put your money to work for you in many ways. Some options, such as the stock market, offer the potential for higher rate of returns but can come with higher risk. Other options, such as money market accounts and savings accounts, have the potential for lower returns but are considered safer investments. Usually, a savings account or money market account is the right pick when you're saving for a near-term goal or when you want to be able to easily access your money.

But money market accounts (MMAs) and traditional savings accounts aren't the same. When you're deciding how to treat your cash, you should know the difference between money market accounts and savings accounts and what that means for your goals. Let's compare these two types of savings accounts.

We'll cover these topics:

Money market account vs. savings account: What's the difference?
Are money market or savings accounts FDIC-insured?
Money market and savings accounts pros and cons
Money market account vs. savings account: Which should you choose?
Money market and savings account FAQs
How do you open a money market or savings account?

Money market account vs. savings account: What's the difference?

You can open a money market or savings account at a bank, and both accounts earn interest and are insured. But that's where the similarities end between these deposit accounts. The primary difference between money market and savings accounts is how you can access your money. Other notable differences include:

The required minimum balance
The amount of interest earned
The type of interest rate

Money market accounts often offer a slightly higher interest rate than savings accounts. Some money market accounts have tiered interest rates, meaning the higher your balance, the higher your rate. They also often require a higher minimum balance than a savings account.

If you want to withdraw money from a savings account, you either need to get cash from an ATM or visit your bank to make a withdrawal. Money market accounts give you the option of writing checks or using a debit card to access your money, like your checking account.

Are money market or savings accounts FDIC-insured?

The Federal Deposit Insurance Corporation (FDIC) insures savings and money market accounts at financial institutions. When you open a savings or money market account at an FDIC-insured institution, you can feel confident your money is safe and sound, even if the bank were to face financial difficulties.

FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category. If you have both a money market and a savings account with a bank, up to $250,000 across both accounts is covered, rather than $250,000 per account. However, if you open a savings account at Bank A and a money market account at Bank B, the FDIC covers up to $250,000 at the first bank and up to $250,000 at the second.

The same is true if you have an individual and a joint account at the same bank. The FDIC covers up to $250,000 in each account since they're in different categories.

Money market and savings account pros and cons

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

Money market account vs. savings account: Which should you choose

Pros of a money market account

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 of a money market account

Some accounts have high minimum balances.
Some accounts charge monthly maintenance fees.
Some accounts limit the number of transactions each month.

Pros of a savings account

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

Cons of a savings account

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: Which should you 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.

Alex is saving for a dream vacation. They'd like to have $4,000 to travel around Europe for three weeks next year. So far, they've saved $1,000. They can open a savings account with no fees and an interest rate of 1.00% APY. Or they can open a money market account with an interest rate of 1.50% APY and no fees if they have more than $5,000 in the account. The account charges a $5 monthly fee for balances under $5,000. If the balance climbs above $10,000, the interest rate increases to 2.00% APY .

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

Now, let's say Alex is 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. 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 they need it for an unexpected expense.

Keep in mind that it's not necessarily an either/or situation. You can open both a savings account and a money market account — using each account for different savings goals. Alex can open a savings account for their vacation goal and a money market account for their rainy-day fund.

Bank account feature	Savings account	Money market account
Earns interest	Yes	Yes
Minimum balance required	Sometimes	Often
Check writing capabilities	No	Yes
Tiered interest	Usually no	Often
FDIC-Insured	Yes	Yes

Money market and savings account FAQs

Have more questions about money market accounts or savings accounts? Here are some answers.

The first step when opening either a savings account or money market account is to find a bank. Banks have different interest rates, deposit requirements, fees and minimum balance requirements for each financial product. You can work with a bank you already have another account with or choose a new institution.

If you're opening an account online, the easiest way to deposit money is through a transfer, meaning you move money from an existing account to the new account. You can decide how frequently you want to deposit money into your savings or money market account based on your budget and goals.

Most savings and money market accounts compound interest daily, meaning it gets added to your balance, helping your money grow even more. At the end of the month, the bank may deposit all the accrued interest into your account so you can see how much your balance has grown.