Money Market Account vs. Savings Account

Accountancy Resources

Money Market Account vs. Savings Account

Banking Personal Finance Author: Admin


When choosing the right bank account for you two of the options that will present themselves are money market accounts and savings accounts. This article will highlight the differences and assist you in making the best decision when it comes to a money market account vs. a savings account.

Savings Account

A savings account at a bank is the account you would use to put the cash you are planning on saving. Many savings accounts will have transaction fees associated with them, though some accounts provide a limited number of free ones.

With some banks, you may not even be able to access your account from non-network ATM’s so it is important to be aware of this if it applies to your card.

Savings accounts come with an interest rate that you will earn on any cash that you have deposited in the account. As such any cash, you save here will earn more income over time, providing a tangible benefit to having a savings account. The interest rates are often still fairly low, but it will at least ensure that you are earning more money on your deposit than you are losing to inflation.

Many individuals choose not to have a savings account and instead move their excess cash into some form of investment when they have enough to make a contribution. This works if you have a steady flow of income coming in but if you would like to have a quick and easy source of cash available, and have that cash generate some income for you, a savings account can be a good resource.

Money Market Account

Money market accounts are similar to savings accounts but they often come with higher interest rates earned on the money you have deposited in them. They do, however, often come with relatively high minimum balances (i.e. $5,000) and if your balance were to drop below the minimum balance you can incur fees or face some other form of penalty.

In addition to the higher interest rates, many money market accounts include some of the features typically associated with checking accounts like unlimited transactions allowed. The reason money market accounts offer higher interest and better features than a savings account is tied to the minimum balance requirement. With a minimum balance locked in the bank can use that cash for its own purposes, i.e. making loans to other customers, and generating income from the deposit in excess of the interest you’re earning.

Money Market Account vs. Savings Account

Money market accounts only work for individuals who regularly keep a significant cash balance in their bank every month, as that is a pre-requisite to opening one. While the interest earned is often worth less than what could be earned on other investments you do have far faster access to the cash in the account (even if you would face penalties to go below the minimum). This is a major factor for some who would prefer to have some money not locked into investments that could take days to sell and clear to their bank account.