When you were little, saving money meant putting every dime of your allowance into a piggy bank. The plug in the bottom was hard to open, and the slit at the top was too small for your chubby little fingers to fit through. So, when the ice cream truck came around, it wasn’t easy to impulse spend. Whether you realized it or not, that hard-to-open piggy bank was teaching you how to save your money.
And now that you’re older and saving for things that are much more expensive than an ice cream sandwich, you need a better place to stash that cash than a ceramic farm animal on your dresser. But what’s the best option? Don’t worry—we’ve got the inside scoop on when it makes sense to use a money market vs. a savings account.
What Is a Money Market Account?
A money market account is a type of savings account that usually offers a higher interest rate and easier access to your money than a typical savings account. That’s right, you can get checks or a debit card to use your savings—though you might be limited on how often you can make a withdrawal. You’ll probably also need to make a higher initial deposit or keep a higher monthly balance in your money market account.
Money market accounts and savings accounts are kind of like siblings. They’ve got similar DNA, but they look (and act) a little differently. That said, there are a few places where you could open your money market account:
What Is a Savings Account?
A savings account is an account you can open with your local bank or credit union. It gives you a safe place to put your hard-earned money that you won’t (or shouldn’t) touch for a while. Your bank may require a minimum balance in your savings account, but having money in savings is the point! If you need to spend, that’s what your checking account (or actual cash on hand) is for.
Remember, checking accounts and savings accounts can work well together, like best buds who can share back and forth, but they shouldn’t be seen as the same. One is for cash stashing. One is for cash flowing.
A while back, you may remember (or your parents may tell you) that savings accounts got you a decent amount of money in interest. Well, not so much today. But remember, with savings accounts, even a high-yield savings account, your first concern should be saving money, not your rate of return. Think of it as a safer version of your beloved childhood piggy bank.
What Can I Expect From a Savings Account?
From an everyday, run-of-the-mill savings account, you can expect:
- A limited number (usually six) of transfers or withdrawals per month
- A (very) small rate of interest
- A safe place to keep money you won’t be using for a little while—ahem, like your starter emergency fund
Also, be aware of any fees that come with a new savings account. Often, you’ll have to meet a minimum balance to escape them.
Money Market Account vs. Savings Account: What’s the Difference?
Here’s the deal: Money market accounts and savings accounts are both great for stockpiling cash for the unexpected. The biggest difference you’ll find between a money market account vs. a savings account is the amount of access you have to your money.
A money market account gives you the freedom—and flexibility—of writing checks. It sometimes even comes with a debit card. On the flip side, a savings account is meant to be more stable—no checks and no debit card.
Let’s compare money market and savings accounts a little more closely:
Calculate the growth of your money market account with this free tool.
Both money market accounts and savings accounts at banks and credit unions protect you in case your bank goes under—this includes neobanks and brick-and-mortar banks. Both the Federal Deposit Insurance Corporation and the National Credit Union Administration will cover your deposits all the way up to $250,000.
Quick note: Money market accounts are very different from money market fund accounts (sometimes called money market mutual funds). Money market funds live in the investment world—which means they aren’t for stashing savings you might need for big purchases or emergencies.
Both money market and savings accounts also give you the opportunity to earn interest—a really small amount of interest—depending on your bank’s current rates. But don’t forget: This is an account for savings. You’re not really trying to make money on this money. You’re trying to save for specific purposes like emergencies, a down payment on a house, a family vacation, or even next year’s Christmas fund.
Which Account Should I Choose?
Here’s the thing: When you’re considering a money market account vs. savings account, your choice really dependson where you are in your wealth-building journey—or as we call them, the 7 Baby Steps.
Baby Step 1 is saving up $1,000 strictly for emergencies. That starter emergency fund works best in a regular ole savings account—especially because some money market accounts require a minimum deposit higher than $1,000.
By putting your starter emergency fund in a savings account, you’ll still be able to access it, but it’ll be a little harder than swiping a card or writing a check to get to it. Of course, you’ll still have the ability to make online transfers between your checking and savings accounts. (Remember, your checking and savings accounts are best buds.) This is where discipline comes in—don’t touch it!
You’ll leave that $1,000 in there as you work on tackling all of your debt (Baby Step 2). Once you’re debt-free (woo!), you’ll start working on saving 3–6 months of expenses in a fully funded emergency fund (Baby Step 3). As you see those dollar signs add up, it can make more sense to put that cash in a money market account.
Hey—whether you put your money in a money market account or a savings account, the most important takeaway here is that saving for life’s big events is just the smart thing to do. And the best way to learn how to be smart with your money is with Financial Peace University (FPU). FPU has helped millions of people learn how to manage their money like no one else. Now it’s your turn!