What is the difference between savings account and money market

They do everything together. Think of it as a safer version of your beloved childhood piggy bank. Also, be aware of any fees that come with a new savings account. A money market account is a type of savings account that gives you a chance to earn a higher rate of interest on your account balance, keep your money safe and sound, and have more access to your account than a typical savings account think checks and debit cards.

The money market account and the savings account are kind of like siblings. That being said, there are a few places where you could open your money market account:. Like we said earlier, money market accounts give you the opportunity to earn a higher rate of interest on your account balance. That comes later. A savings account limits you to six or so transactions per month, while a money market account gives you the freedom—and flexibility—of writing checks.

It sometimes even comes with a debit card. Both money market accounts and savings accounts at banks protect you in case your bank goes under. As bank products, money market accounts and savings accounts are considered very low-risk vehicles.

But of course, there's the usual tradeoff for safety: less risk equals lower returns. The yield on savings accounts is especially low—often below the rate of inflation.

And at many of them, that interest rate is fixed. Fixed-rate investments are especially vulnerable in inflationary climates when prices and costs are rising.

The interest rates on money market accounts are variable, so they rise or fall with inflation —an advantage for them, though they still could be outpaced if prices rise rapidly. Also, money market accounts are still prone to changes in interest rates. If the Fed, in an effort to stimulate the economy, lowers the federal funds rate at which commercial banks borrow and lend their excess reserves to each other overnight , it often has a ripple effect, resulting in lower interest rates being earned by these bank accounts.

How the interest in your money market or savings account is compounded —yearly, monthly, or daily, for example—can have a substantial impact on its return, especially if you maintain a high balance in your account.

Let's say you want to stick with one of the bank accounts. Investigating the details on different options within each type will help you avoid high fees and account minimums. You might want to opt for a money market account if you have a substantial amount of funds—at least four figures' worth—to deposit, and if you can easily maintain such a minimum balance in the account.

For that, you'll be rewarded with a slightly better yield; often, the higher your balance, the greater the interest rate. But since it is earning more interest, it's a good place to keep funds for a fairly long time period, certainly a year at least—towards a medium-range expenditure or goal. Since you can withdraw money from it easily and it doesn't earn much, a savings account is well-suited to short-term goals—a place to park funds until your holiday or a big purchase.

Deciding whether to hold your money in a money market mutual fund, a money market deposit account, or a traditional savings account will depend largely on the amount of money you have to save and how frequently you need to access it. Another factor: How much you want your money to earn, and how much risk you want to assume.

A money market fund offers the most bang for the buck, in terms of interest. Admittedly, as an investment vehicle, it isn't quite as safe as the bank accounts—there's no federal insurance against loss. But in the grand financial scheme of things, money market funds are exceedingly low-risk and highly liquid, so if you're chasing yield above all else, they could be the best bet. A money market fund MMF is one alternative to money market and savings accounts. MMFs are mutual funds that invest in short-term debt, like Treasury notes, CDs, and commercial paper; cash; and cash equivalents.

These are all very liquid assets, and MMF money is quite accessible—you can often get funds the same day. Some MMFs even come with checks or debit cards. And they don't limit transactions to six times per month, either. Another possibility is a high-interest checking account. These have all the features that come with traditional checking accounts—plus, as the name says, they offer interest rates that rival and sometimes exceed those of money market accounts though they often impose a cap on the amount of the balance they'll pay on.

They may also require a certain number of transactions per month. Both a money market account MMA and a certificate of deposit CD are types of insured, interest-bearing financial accounts offered by banks and credit unions. However, a money market account is an open-ended that is, ongoing , demand deposit account.

That means you have access to your funds pretty much whenever you want them. You may be limited as to the number of transactions in a certain period, but you can withdraw or transfer your money easily, and of course close the account if you want to, without penalty.

The funds in the account earn interest at a variable rate. In contrast, with a CD, you deposit a certain sum with the bank for a finite period—anywhere from a month to 10 years. During that time, the CD earns interest, usually at a fixed rate. It's a higher rate than that offered by the MMA, but the catch is, your money—both the principal and the interest earned—is locked up for the term of the CD. You're likely to face a fee or early withdrawal penalty if you do access the funds.

So: no checks, no transfers, no liquidity—that's the tradeoff for the bigger yield on your deposit. Since rules and yields for money market accounts vary greatly, it pays to shop around. One good place to start is with your current financial institution; though it's not necessary to have the MMA in the same bank as your checking or savings account, there may be special offers or privileges for multiple account holders—or advantages in linking accounts. You needn't be limited to your local region—or even to a brick-and-mortar institution, In fact, the highest-yielding accounts are often from online banks , which can pay more since they've less overhead.

When evaluating money market accounts, the three most important things are: the interest rate, the interest rate, the interest rate. But there are a few other factors to consider. Among them:. Securities and Exchange Commission. Consumer Financial Protection Bureau. Particularly with online-only banks, interest rates can be the same for either type of account. 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. 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. The primary disadvantage of money market accounts is the usual requirement of a minimum balance to open the account. There is usually no minimum balance required with a savings account.

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.