Saving money is quite tricky, especially if you don’t know where to put it. Most people opt to save in the bank, while some don’t and leave it in a safety vault.
If you’re looking for ways to save your money, you don’t have to worry because there are many great options. Today, we’ll focus on two of those ways: money market accounts and savings accounts.
Today, we’ll be discussing what you need to know about these accounts and why you might consider one over the other. Read on to find out which one is for you!
Money Market Account Explained
Money market accounts are accounts offered by banks and other financial institutions.
They’re usually referred to as market deposit accounts and typically have the features of savings and checking accounts.
With a money market account, you’re able to write checks and make debit card transactions.
Also, most money market accounts have savings account features that allow you to collect a monthly interest on your balance.
Pros and Cons of Money Market Accounts
Money market accounts are a great place to save money. However, there are pros and cons you need to know about.
Below, we’ll discuss some of the pros and cons of money market accounts to help you decide if it’s for you.
Pros of Money Market Accounts
1. There’s high interest.
Generally, the interest of money market accounts falls between a traditional savings account and a certificate of deposit. That said, a money market account is an excellent place to store your money.
2. Your funds are accessible.
Typically, money market accounts offer you check-writing privileges. Some also provide debit cards, giving you access to electronic transfers.
Additionally, money market accounts are known to be liquid. This means that you can withdraw money from your account when you need it.
3. It’s a safe place for your money.
Like we’ve said, a money market account is an excellent place to store your money because of interest rates. Besides that, it’s also safe because banks and credit unions that offer money market accounts are federally insured.
Cons of Money Market Accounts
1. Withdrawals are limited.
With money market accounts, transactions are generally limited. This is because most accounts fall under Regulation D.
Because of this, you can only write a limited number of checks and make limited electronic transfers.
Also, some banks are stricter than others, which means that your ATM withdrawals may decrease your total transactions.
Keep in mind that banks typically allow six transactions a month, but it still depends.
2. There’s a high account minimum.
Compared to others, money market account holders are required to keep a higher account minimum. This enables you to get the best APY.
With this, you must read the fine print before enrolling in an account. This is because you might need a large sum of money to get the best rates.
Usually, money market accounts require an amount between $500 to $25,000 to get the best possible rate.
3. You can be charged monthly fees.
Like we’ve said, money market accounts require a high account minimum. If you don’t meet the minimum, it’ll likely incur a charge.
When to Use a Money Market Account
As we’ve mentioned, money market accounts give you higher interest than other accounts. Also, you can earn up to twice as high as a savings account, depending on how much you invest.
Because of this, we suggest you keep money in a money market account if you have medium-term goals, specifically, goals that can take you a few years but less than a decade.
Say you want to buy a house. Enrolling in a money market account will likely give you more money over time than keeping it in another type of account.
Savings Account Explained
Savings accounts are another way to store money. Typically, banks offer savings accounts to complement their clients’ checking accounts.
It’s reasonably easy to build a savings account as you can add it to a debit card. This way, you can withdraw and deposit money, make electronic transfers, and pay via wire payments.
However, as we’ve mentioned, the interest in savings accounts generally ranges from very low to moderate. Also, savings accounts are typically lent to others for loans, credit cards, and credit lines.
Advantages and Disadvantages of Savings Accounts
Like money market accounts, a savings account is also a great way to save money while earning interest. In this section, we’ll briefly discuss some of its advantages and disadvantages.
Advantages of Savings Accounts
1. It’s a safe place for your money.
Like money market accounts, savings accounts are also a safe place to keep your money in. This is because the FDIC generally insures savings accounts.
Also, most savings accounts are insured for up to $250,000.
2. There are low fees and account minimums.
Given the many savings account options you can choose from, you can find high-yield savings accounts when you don’t incur monthly fees.
Additionally, banks generally don’t have the minimum balance requirements you have to meet.
3. You have access to ATMs.
Savings accounts are also liquid, like money market accounts.
Typically, savings accounts enable you to access your funds using ATMs. Additionally, there’s also ease in transferring your money from your savings to your checking account.
Disadvantages of Savings Accounts
1. Interest rates are lower.
Like we’ve said, the interest of savings accounts typically falls somewhere between low and moderate. This means that your APY will likely be lower.
2. There are withdrawal limits.
Similar to money market accounts, savings accounts also have transaction limits. Because of this, the number of withdrawals you can make is limited.
When to Use a Savings Account
We recommend using a savings account if you need funds for short-term use because of the low-interest rate. Short-term goals are those you can reach within the next few years.
It’s also a great way to keep the money because you can’t make direct purchases using a savings account.
However, keep in mind that you can access them immediately for emergencies.
Money Market Accounts vs. Savings Accounts: At A Glance
Now that you know what the money market and savings accounts are, it’s time to look at their differences.
We’ve provided a table below to help you identify them quickly.
|Money Market Accounts||Savings Accounts|
|Key Features||– Has a higher interest rate- Allows you to write checks and withdraw cash- Has a high account minimum- FDIC-insured||– Has low-interest rates- Low to no minimum balance- More liquid- FDIC-insured|
|When to Use||– If you have a high account balance- If you’re looking for high-interest rates||– If you want highly accessible funds- If you have a low minimum balance|
Comparison of Features
Here’s a brief comparison of account features to help you decide which one is best for you.
|Feature||Money Market Accounts||Savings Accounts|
|Can earn interest||Yes||Yes|
|Allows you to write checks||Yes||No|
|Gives you ATM access||Yes||Yes|
|Gives you a debit card||Yes||Yes|
Aside from those in the table, there’s something else you have to remember about both.
Keep in mind that both money market and savings accounts recommend that you leave your money untouched. Banks do this by limiting the transactions you can make.
While ATM and in-person withdrawals aren’t limited, there are transactions you can only make for a total of six times. These are:
- Check payments
- Debit card purchases
- Electronic transfers
Also, note that the limit of six transactions applies per statement cycle. Exceeding the limit may cause the closure of your account.
How to Use Money Market and Savings Accounts for Financial Goals
Depending on your financial goals, the two accounts we’re discussing can either help or not. Also, keep in mind that you’re not limited to using only one.
If you think it’s better, you can always use the two together to maximize your earnings and reach your goals faster.
- If you have short-term goals
Like we’ve mentioned earlier, savings accounts are best for those of you who have short-term goals.
Savings accounts are a good fit for short-term plans like vacations and bills. This is because earning low-interest won’t matter much if you need the money immediately.
- If you have medium-term goals
For you who have medium-term goals, money market accounts are more beneficial. This is because these accounts require a higher minimum balance, which results in a higher earning.
Additionally, although it’s not as liquid as savings accounts, it allows you to withdraw funds earlier than you planned.
- If you have long-term goals
If you have long-term goals, money market accounts and savings accounts aren’t for you. This is because both aren’t restrictive and allows you to make withdrawals from your account.
If you have a long-term goal, we recommend you get a certificate of deposit (CD).
Choosing the Right Account for You
Ultimately, the best account for you depends on your needs, finances, and goals. In many instances, starting with a savings account is a feasible option.
It’s beneficial if you want to avoid high balance minimums and fees. Also, you can use a savings account to build your balance over time.
Once you feel like you’re not earning enough, it might be time to add other types of accounts. Like we’ve said, it’ll all boil down to what you want to accomplish with your money.
But, if that’s not enough help, we got you covered. If you still can’t decide on which account to get, here are some questions you can ask yourself.
- Do you want your money close by?
If you do, your options for rates and account types might be limited.
- Are you concerned about interest rates?
If you are, look around for high-yield accounts from online banks.
- Do you need easy access to your funds?
If you do, money market accounts with debit and checkbook access may be your best option.
- Do you prefer limited fund access to build your savings?
If you do, consider enrolling in a savings account to keep your money accessible at all times.
To Wrap Up!
Saving money is easy if you know your options. Both types of accounts have advantages and disadvantages that could make one more helpful than the other.
Whichever type of account you choose, ensure that you considered your needs and goals to find the best fit for you. With this, don’t forget that you have to understand both to help you make the right decision.
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