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Savings vs. Money Market Account – Which is Best?

Building a plan to save your hard-earned money is essential for good financial health. And, once you start saving that money -- whether it’s $5 a week or $500 a month -- that plan should include where exactly you’ll put all of that cash.

For new savers, the options can be confusing, especially as you read through the fine print. But two options for those just beginning their savings journey rise to the top: the traditional savings vs. money market deposit account.

Both offer a lot of the same benefits. Here are a few:

  • They are available through banks -- the brick-and-mortar version and online institutions.
  • They are safe places to store your money. Both are insured by the Federal Deposit Insurance Corporation, often referred to as the FDIC. The federal agency insures deposits in banks and thrift institutions for up to $250,000 per depositor, per insured bank, which means you don’t have to worry about losing your nest egg if the bank shuts down. (Just don’t confuse a money market account with a money market “fund,” which is offered by investment brokers and mutual fund companies and isn’t FDIC insured).
  • Both kinds of accounts earn interest … which means your money will grow on its own.
  • You won’t face penalties for pulling all of the money from the accounts. (But that’s not the point of saving, right)?

So which account is best for you? In some cases, it’s a wash. In other cases, it depends on your needs. Here are a few scenarios.

You don’t have much money to open a new account.

It’s likely that a traditional savings account would be your best option. Some savings accounts require as little as a $25 minimum balance, which means you aren’t required to dump a bunch of cash into it at the very beginning. Money market accounts typically require a higher minimum balance -- sometimes $500 or $1,500 -- and a larger opening deposit.

You want to take advantage of interest rates.

It depends. You’ll have to do some research and check in with banks -- the brick-and-mortar and online varieties. A quick search on finds that interest rates hover around 1 percent when making a minimum deposit of $1,000 in either a savings account or a money market account.

You’re socking the money away for your emergency fund.

Consider the money market account, which likely will come with some restriction on how often you can make withdrawals or write checks each month. If you top the limit, you’ll probably have to pay some bank fees. And, in reality, you shouldn’t be pulling money from your emergency fund anyway. The fund should ideally total three to six months of your salary and be set aside to use in a real emergency, such as a job loss or a major medical issue.

You may have to take money out of the account regularly.

Choose the savings account. There’s typically no limit on how often you can withdraw money, so you won’t face charges if you must pull money from it.

But the ease of pulling money from a savings account shouldn’t give you a green light to start draining your new account. If you’re on a path to savings, stay focused on building up that cache of cash.

CESI’s Comprehensive Guide to Personal Finance has more information about banking basics if you want to learn more of the ins and outs of banking.

The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!




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