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Savings vs. Money Market Accounts

If you’re looking to save, then you may be asking yourself “what’s the best way to do this?” When people think of saving, they usually think of savings accounts, but there are other options available. One of these options is a money market account. Both of the options are risk-free because the funds you invest in them are insured by the FDIC, and your money is easily accessible, as opposed to other types of accounts, like Certificates of Deposit (CDs) where your money is locked up for a predetermined amount of time. Although savings accounts and money market accounts are similar, there are a couple of differences that you may want to consider before opening one of these accounts.

  • Minimum Balance: For both savings accounts and money market accounts, you usually have to keep a minimum balance so that you’re not charged fees by the financial institution. Usually, the required minimum balance for a money market account is higher than for a savings account, but it depends on the financial institution you have your account through.

    If you’re trying to save but are prone to withdrawing from savings, or can’t make a larger deposit, then a savings account may be a better option so you can avoid fees. If you start out with a savings account and gain confidence that you can keep a high enough balance for a money market account, you can switch accounts at a later time.

  • Check-writing: Unlike savings accounts, some money market accounts offer limited check-writing abilities. Money market accounts that come with check writing availability offer the perks of both checking and savings accounts.

Savings Accounts Money Market Accounts
Risk-free & backed by FDIC Risk-free & backed by FDIC
Lower required minimum balance Higher minimum balance
Limited check-writing ability

Why an Online Account?

Unlike regular brick-and-mortar banks, online savings accounts offer a higher yield on interest rates to customers. This is because online banks have reduced operational costs so digital banks pass the savings onto their customers. Although average interest rates are .09 percent for savings accounts, most traditional banks still only offer .01 percent to customers. Interest rates for online bank accounts can be as much as 20 times what traditional banks offer. Online banks also tend to have lower fees.


APY stands for annual percentage yield. It is also referred to as compound interest. This is the rate of return on an investment. The APY is how much interest you earn each year or each month, depending on the financial institution. The interest compounds, meaning that you earn interest on top of the principle you’ve invested and the interest you have already earned. For example, if you invest $10,000 and your APY is 10 percent, you’ll earn $1,000 in your first year. Then, since the interest compounds, the interest you earn the next year is $1,100 - $1,000 on the principle and $100 on the interest you earned the previous year. If you invest in an account with a high APY, the earnings on interest could be huge!

Reasons to save

Making money off compounding interest may sound appealing. But if many Americans aren’t saving, then you may wonder why you would want to save, especially if you’re one of many Americans living paycheck to paycheck. There are multiple reasons to save, all of them useful.

  1. Emergency Fund: You lose your job. You have a medical emergency. Your car needs repairs. An emergency fund is useful in all of these situations. It’s better to save for an unexpected emergency than to be unprepared and max out your credit cards.
  2. Down Payment: You want a new car. Or a house. Or maybe, you found that special someone and want to get an engagement ring. Saving a down payment can help you when it comes to getting financing.
  3. Retirement: 66% of Millennials are not saving for retirement. While there are other options for saving for retirement like Roth or 401k accounts, a savings or money market account is a great way to supplement retirement.
  4. Vacation: Many Americans don’t go on vacation. Whether this is due to work obligations, or lack of available funds, opening a savings or money market account to go on vacation is a great idea – especially if you want to go all out on that European vacation you’ve always been dreaming of.
  5. Big Purchases: Furniture. TVs. Boats. There may be something that you’ve always wanted that costs a pretty penny. The more you can save for these types of large purchases, the less you’ll have to finance and go into debt.

How to save

It may seem challenging to start saving, but once you start, it becomes pretty simple. The more creative you are, the more you can save. Here are some ways that you can start saving:

  1. Cut Expenses: We can’t say enough about budgeting and cutting expenses. Maybe instead of eating out three times a week, you can cut down to once a week (or not eating out at all). How about those streaming subscriptions? Do you really need all of them? Or do you find yourself using only one? Evaluating your budget can help you cut out expenses and put aside more money for saving.
  2. Automate: One easy way to save is to automate. You can set aside a certain amount per paycheck to go straight to a savings account so you never see it in your checking account and don’t spend it. If it’s out of sight, it’s out of mind, and you don’t miss it.
  3. Gift Money and Bonuses: It’s understandable that you may want to treat yourself if you receive gift money for your birthday or a giant bonus at work. Save it instead – or at least save a portion of it. Instead of “treat yourself,” pay yourself. Your future self will thank you.
  4. Credit Card Rewards: If you have a great cash back credit card, how about putting your rewards toward savings? Just remember that this can backfire if you’re not paying off your balances each month.

Final Thoughts

Even if you start out with a small investment, a savings or money market account is a great place to stash cash and earn money on it – especially if you have an account through an online bank. There are plenty of reasons to save, and plenty of ways to do so. When deciding to open a savings or money market account, it’s worthwhile to do your research to see which accounts have the highest APY. In deciding what type of account to open, you’ll also want to look at the minimum balance required in order to avoid paying any fees to the financial institution. Whatever the reason may be, you won’t regret saving your money for a rainy day.

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