Money Markets and Savings Accounts: What You Need to Know

Personal Finance Education | 01.09.2024
When it comes to banking products, you likely have heard of money markets and savings accounts, but may not be aware of the differences between them. They each offer different benefits as part of your savings strategy, so it is important to understand how they work and what their advantages and disadvantages are before deciding which one is best for you. 

What is a Money Market Account?

A money market account is a type of savings account that pays a higher interest rate than traditional savings accounts. It also has certain restrictions on the number of withdrawals and deposits you can make each month. These accounts are typically used by people who are looking to maintain a higher balance with a higher yield than a traditional savings account, allowing them to earn more interest income.

Money market accounts are an attractive option for those who want to earn a higher return on their money while having easy access to their funds when needed. By depositing in a money market account, you benefit from the safety of FDIC insurance while earning more than you would with a traditional savings account.

How Do Money Markets Work?

Unlike regular savings, a money market account typically requires a higher minimum balance and a minimum deposit to open. For example, a Merchants Bank Diamond Money Market account has a $5,000 opening minimum deposit and daily balance requirement. Money market accounts are FDIC insured, which means your money is backed by the federal government up to FDIC limits.

Money market accounts also offer access to check writing and ATM cards, making them similar to high-interest savings accounts. These features make it easy to withdraw money when you need it. However, unlike high-interest savings accounts, money market accounts may have more limitations on the number of transactions you are allotted to make each month. This is because these accounts are designed to be long-term savings, rather than short-term accounts. Both may have a place in your savings strategy, depending on your goals.

What is the Difference Between a Money Market and a Savings Account? 

Money markets often offer higher interest rates than traditional savings accounts, making them an attractive choice for those seeking higher returns. However, they also come with more restrictions, such as limited access to funds and often higher minimum balances than a savings account.

On the other hand, these accounts are designed to help you save money over a period of time. Savings accounts usually offer lower interest rates than money markets and have fewer restrictions, allowing you to withdraw your funds without penalty. High-interest accounts are designed to help you grow your money faster by offering higher interest rates than traditional savings accounts, which in combination with a higher minimum balance requirement can really make an impact on your savings.

Overall, both money markets and savings accounts can be beneficial financial tools. It is important to evaluate your individual needs and determine which product is best for you. If you are looking for long-term investments that may yield higher returns, a money market may be a good choice for you. However, if you are looking for a more flexible savings vehicle with easy access to your funds, a savings account may be a better option. You can use our savings calculator below to compare how different interest rates may affect your savings.

Talk to one of our representatives today for assistance in finding the right savings option for you!

Interactive calculators are available for your independent use and are not intended to provide investment or tax advice. We do not guarantee their applicability or accuracy in regards to your individual situation. All examples are hypothetical. We encourage you to seek advice from qualified professionals regarding your personal finances.

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