Money market account vs savings account: how they compare
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Key takeaways
A money market account is a type of deposit account that often pays a higher interest rate than a standard savings account, sometimes with check-writing or debit card access.
Money market accounts and savings accounts are both typically covered by federal deposit insurance up to applicable limits.
Money market accounts sometimes require a higher minimum balance to avoid a monthly fee.
Both account types are generally better suited to money being set aside than money needed for daily spending.
Comparing the minimum balance and interest rate across a few institutions helps identify the better fit for specific savings goals.
A money market account looks a lot like a savings account, but it offers a few extra features and different rules. Here’s how they compare.
What is a money market account?
A money market account, sometimes called a money market deposit account, is a type of bank account that typically pays a higher interest rate than a standard savings account, while often allowing limited check-writing or debit card access. It’s still a deposit account, not an investment product, and it’s generally covered by federal deposit insurance(opens in new window) up to applicable limits at an insured bank or credit union.
Money market account vs savings account: key differences
Money market account | Savings account | |
|---|---|---|
Interest rate | Often higher, though rates vary by bank and by balance tier | Typically lower and more uniform across balance levels |
Access and withdrawals | May include check-writing or debit card access, with some limits on frequency | Withdrawals are usually possible but may also be limited in number per month |
Minimum balance | Often requires a higher minimum balance to avoid fees or earn the advertised rate | Minimum balance requirements are typically lower |
FDIC insurance | Covered up to applicable limits at an insured institution | Covered up to applicable limits at an insured institution |
Why the difference matters for your savings
For immigrants building savings alongside regular remittances, choosing between a money market account and a savings account often comes down to how much can be kept in the account and how often it might need to be accessed.
A money market account can make sense with a larger balance to set aside and no expectation of dipping below the minimum balance requirement, since falling under that threshold can trigger fees or a lower interest rate. A standard savings account tends to be more forgiving for smaller balances or for money that might need to be accessed more frequently.
Neither account type is designed for money needed for daily spending, since both typically limit the number of withdrawals allowed each month. For everyday transactions, a checking account remains the better fit.
Money market accounts and international money transfers
A money market account isn’t typically used to fund or receive an international transfer directly, since its features are built around holding savings rather than everyday transactions. Where it becomes relevant is in how money is managed alongside a regular remittance schedule.
For savings set aside beyond what’s sent home each month, keeping that money in a money market account(opens in new window) rather than a checking account can help it earn a bit more interest while remaining accessible if needed for a larger, planned expense, such as a future visit home or a family emergency abroad. Because access is more limited than a checking account, it’s worth keeping a regular remittance amount in a more liquid account and reserving the money market account for savings that aren’t being tapped into month to month.
How a money market account differs from a money market fund
It’s easy to confuse a money market account, a type of bank deposit account, with a money market fund, an investment product offered by a brokerage. The SEC specifically warns(opens in new window) that although the names sound nearly identical, a money market deposit account is FDIC-insured up to applicable limits, while money invested in a money market fund is not guaranteed by the FDIC at all, since it’s a mutual fund rather than a deposit account.
Check-writing and debit card features
One feature that sets some money market accounts apart from a standard savings account is limited check-writing or debit card access, offering a bit more flexibility while still typically paying a higher interest rate than a basic checking account. Not every money market account includes this feature, so it’s worth confirming with a specific bank if this flexibility matters.
Tiered interest rates based on balance
Some money market accounts use a tiered interest structure, paying a higher rate only on balances above a certain threshold, meaning the advertised top rate might not apply to the entire balance unless that specific tier is met, worth checking carefully before assuming the full balance earns the highlighted rate.
Why comparing APY, not just the advertised rate, matters
When comparing money market accounts, looking at the annual percentage yield, which accounts for compounding, rather than a simple stated interest rate alone, matters, since two accounts with seemingly similar rates can produce meaningfully different actual returns depending on how often interest compounds.
Common questions about money market accounts
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Is a money market account the same as a money market fund?
No, and this is a common point of confusion. A money market account is a deposit account at a bank or credit union(opens in new window), insured up to applicable limits like a savings account. A money market fund is an investment product, typically offered through a brokerage, and is not covered by the same deposit insurance. The names sound similar, but the protections are different.
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Do money market accounts have a minimum balance requirement?
Many do, and the required amount varies by bank. Falling below the minimum can sometimes result in a monthly fee or a lower interest rate, so it’s worth confirming the specific terms before opening one, though requirements vary by institution.
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Can I write checks from a money market account?
Some money market accounts include limited check-writing privileges, though the number of transactions allowed per month is often restricted. This varies by bank, so it’s worth checking a specific account’s terms if check access is important.
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Should I choose a money market account or a CD for savings I won’t need soon?
It depends on how certain that timeline is. A certificate of deposit(opens in new window) generally locks in a fixed rate for a set term in exchange for less flexibility, while a money market account keeps funds more accessible but with a rate that can change over time. For savings with a firm, known date they won’t be needed, a CD’s fixed rate can be worth the tradeoff; for savings that might need to be accessed sooner than planned, a money market account’s flexibility is usually the safer choice.
In Summary
A money market account sits between a checking account and a savings account, often offering a higher interest rate in exchange for a higher minimum balance and more limited access. For immigrants managing both everyday expenses and a savings goal alongside regular remittances, understanding this tradeoff helps in deciding where different portions of money should sit.
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