Difference between a Money Market and a Savings Account

By: | Updated: Feb-10, 2020

Money market and savings account are interest-bearing accounts that help people manage and grow their funds. However, they each have unique features that make them applicable for specific purposes.

Summary Table

Money MarketSavings Account
Usually offers a higher interest rateUsually offers a lower interest rate
Designed with a check-writing privilege, along with other features such as cash deposits, withdrawals, and money transfersDesigned with deposit, withdrawal, and money transfer features
Usually has a higher minimum deposit requirementUsually has a lower minimum deposit requirement
Charges higher penaltiesCharges lower penalties

Definitions

A money market account, also called money market deposit account, is a type of interest-bearing account offered by credit unions or banks.

A savings account, on the other hand, is an account that gives owners control over their funds while earning a modest interest rate.

Money Market vs Savings Account

Both offer money-saving privileges, but there is still a huge difference between a money market and a savings account.

Interest Rates

Interest rates vary from one financial institution to another, but between the two, money market accounts usually offer a higher interest rate. Categorized as a “high-yield” account, the interest rate for money markets often depend on the maintaining balance and the performance of the funds. For instance, in some banks, the interest rate for low-balanced accounts starts low, but as the balance grows bigger, the interest also significantly increases.

Savings accounts, by contrast, have more modest interest rates, but there are always exceptions to this rule. To match money market accounts, some financial institutions such as credit unions and online banks promote high-yield savings accounts that offer competitive interest rates.

Transactions

In general, a money market account provides more flexibility since it comes with a check-writing privilege, along with cash deposits, withdrawals, and transfers that are common in a savings account. Basically, a money market account is like a hybrid of a checking and a savings account where owners can access their funds through a debit card or a check. However, this type of account has restrictions in terms of the frequency of transactions per month. For example, some banks limit monthly transfer and check-writing capability to around three to six per cycle, depending on existing policies. Once account owners exceed the monthly limit, they can be penalized, and in worst case scenarios, their account can be closed.

Just like a money market account, a savings account also offers owners access to their funds. As mentioned earlier, it’s an account designed with deposit, withdrawal, and money transfer features that can be accessed via an automated teller machine (ATM) or by making direct transactions in the bank. However, unlike a money market account, a savings account does not come with a check-writing feature.

Deposit Requirements

Both banks follow strict rules and regulations when it comes to maintaining a minimum deposit balance. While money market accounts require a higher amount, it’s always best to check bank policies to avoid penalties.

Penalty

Another significant difference between the two is the penalty that applies after exceeding the number of transactions and failing to maintain a minimum balance. While a money market account usually incurs high penalties, a savings account charges a minimum amount, or in other cases, no penalty at all.

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