Money Markets and Savings Accounts: What You Need to Know

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. 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 may also offer a debit card specifically for ATM access, allowing convenient access to funds when needed. It is important to note that both money market and savings accounts may have withdrawal limits. 

Money market accounts are a good option for people, and even businesses, that want to earn a higher return on their money while having easy access to their funds when needed. 
 

How Do Money Markets Work?

A money market account typically requires a higher minimum balance and a higher minimum deposit to open. For example, a Merchants Bank Diamond Money Market account has a $5,000 opening minimum deposit and daily balance requirement. 

The interest rate structure will depend on the institution you have your money market account through. With a Merchants Bank Diamond Money Market account, the more you save, the more you earn, with tiered interest rates. This means higher balances are rewarded with higher interest rates. It’s just another way these accounts encourage saving. 
 

Primary Differences Between a Money Market and a Savings Account

Money markets and savings accounts commonly differ in two ways: interest rates and balance requirements. 

Money markets offer higher interest rates than traditional savings accounts, making them an attractive option for those seeking more substantial returns. However, they also come with more restrictions, such as a higher minimum balance than a savings account. This restriction is designed to help you save more money over an extended period of time. 

Both account types benefit from the safety of FDIC insurance, giving you peace of mind that your funds are safe in the bank up to the insured limit. 
 

Which Account is Right for You?

Overall, both money market accounts and savings accounts can be beneficial financial tools. It is important to evaluate your individual or business’ needs and determine which product is best for you. You may also decide to use both accounts within your savings strategy. 

People commonly choose a money market account if they want higher earning potential and easy access to funds. If you are seeking an account to store your funds long-term and you plan to maintain a consistent balance, a money market may be for you. These accounts are great for individuals and businesses who have built up a larger balance or plan to maintain funds for bigger savings goals such as a home down payment or business expansion, equipment purchase, etc. 

A savings account is best if you want a simple place to store your money. Especially if you have limited funds or prefer a low or no-minimum balance requirement. These accounts are popular for short-term goals such as emergency savings or planned purchases like vacations, weddings, or small home improvements. 

Use our savings calculator below to compare how different interest rates may affect your savings.

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

Additional Resources:

• Open the Door to Smarter Saving
• Meeting You Where You Are - Digital Tools and Guidance
• Understanding the Importance of an Emergency Fund