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Money Market vs. Savings: Which Account Should I Choose?

Money Market vs. Savings: Which Account Should I Choose?

5 Minute Read

When you were little, saving looked like putting every dime of your allowance (or commission) in a pink piggy bank. The plug at the bottom always seemed impossible to open and the slit at the top too small for your chubby little fingers when the ice cream truck rolled through your neighborhood—and for good reason. Whether you realize it or not, that hard-to-open piggy bank was teaching you how to save your money (and leave it alone).

And now that you’re older and saving for adult things like an emergency fund, you can’t afford to pull the plug on the piggy bank anymore. Now you need a better place to park your money. You’ve probably heard that your best two options for saving your money are money market accounts and savings accounts.

But which is better? Don’t worry—we’ve got the scoop on when it’s right for you to use a money market vs. savings account.

What is a savings account?

A savings account is a free account offered to you by your bank when you opened up your checking account. It’s the perfect place to deposit money you won’t be touching for a while. Think of the checking account and savings account as inseparable best buds. They do everything together.

But other than having your checking account’s back in case of an overdraft, the savings account can actually earn you money. If we’re honest, it’s nothing to write home about. We’re talking pennies on the dollar . . . but that’s okay!

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In this case, you’re not worried about your rate of return. Think of this account as a safer version of your beloved childhood piggy bank.

From an everyday, run-of-the-mill savings account, you can expect:

  • a limited number (usually six) transfers and withdrawals per month
  • a small rate of interest earning you pennies on the dollar
  • a safe place to keep money you won’t be using for a little while—ahem, like your starter emergency fund

Take note of any fees associated with a new savings account. Many times, you’ll have to meet a minimum balance in order to escape them.

What is a money market account?

A money market account is just like a savings account. Think of them as second cousins. They’ve both got the same DNA . . . they just look (and act) a little different.

With a money market account, you have the opportunity to earn a high rate of interest on your balance. But listen closely: Your main goal isn’t to make money on this.  

That being said, there’s a few places you could open your money market account:

  1. Your local bank
  2. An online bank
  3. A mutual fund company

With local and online banks, you have the opportunity to earn interest on your balance, keep your money safe and sound, and have easier access to your money than a typical savings account.

Keep in mind that if you’re still working to pay off all of your debt with the debt snowball, you might not want to open a money market account within a mutual fund company. There’s a higher risk of losing your hard-saved money in the short term and less freedom to cover those unexpected emergencies.

Money market vs. savings: What’s the difference?

Both money market and savings accounts are great for stockpiling cash. And if you’ve listened to The Dave Ramsey Show, you may have heard him talk about money market vs. savings accounts quite often.

That being said, there are different situations where one type of account would be more beneficial for you than the other. But before we get ahead of ourselves, let’s compare what they each have to offer:    

money market vs savings account

Both accounts protect you in case your bank goes under. The FDIC, or Federal Deposit Insurance Corporation, will cover your deposits in both of these accounts all the way up to $250,000. But not all money market accounts have this luxury.

The biggest difference you’ll find between a money market and savings account is the amount of access you can have to your money. A savings account limits you to six or so transactions per month while a money market gives you the freedom—and flexibility—of writing checks. They sometimes even include a debit card.

In the case of a mutual-fund money market account, you’re taking the risk of losing your money. If you choose to go with a mutual fund money market account, you’ll also want to check on its flexibility and if there are any restrictions. If you’re not ready to start investing, you’ll want to stick with a trusted bank.

Both 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 a savings account. You’re not 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?

If you’re on Baby Step 1 and starting to save that first $1,000 for your emergency fund, the easiest place to put it would be your 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. You don’t want to be tempted to touch it!

If you’re working on Baby Step 3 (saving three to six months of expenses in a fully funded emergency fund), congratulations! As you see those dollar signs add up, you’ll want to put it in a money market account. Not only will it be safe and secure, you’ll have the access you need to cover you and your family in case life throws a surprise your way.

No matter if you’re on Baby Step 1, 3 or 7, saving for life’s big events is always a good idea. Download our free budgeting app, EveryDollar, to help you start saving now!

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