Which Is Better For Saving: Money Market Accounts Or Saving Accounts?

Around $5 trillion of Americans’ cash is currently held in money market accounts, representing almost half of all bank deposits in the U.S. These accounts are often offered alongside conventional savings accounts, leading many to question which one is better for parking their savings. The answer depends on several factors.

Money market accounts are basically savings accounts with minor variations. The biggest difference is that a money market account is a hybrid of a checking account and a savings account, which makes it more attractive to some than just pure savings accounts. Money market accounts are federally insured, like savings and checking accounts, so you don’t have to worry about losing your balance if the bank fails.

A money market account is also a better choice for those who want to be able to make transactions with the account without penalty. The total number of transactions you can make with a money market account is limited by the Federal Reserve to up to 6 transactions a month. Banks typically limit check writing from the account to about 3 checks a month.

If you do not expect to make this many transactions each month, you may be better off choosing a savings vehicle with a higher interest rate. If you feel that the number of transactions allowed is not enough, you should look for a checking account that pays interest on deposits. If you continuously move money more than 6 times out of a money market account, the bank is required by the Federal Reserve to move you into a checking account.

Money market accounts are generally better than savings accounts for those that are interested in parking their money for a long time so it can earn the most interest. Money market accounts pay a “money market” rate of interest to attract deposits rather than a capped savings rate like most savings accounts. The amount of interest paid out by a money market account varies from bank to bank, so review the relevant information for the offerings of several different banks before making your decision.

It is important to remember that a money market account may not be the highest-paying deposit product offered at a particular bank. Some banks are beginning to pay more interest on savings account deposits than money market accounts. Review all of the options available to determine which products have the best interest rates.