Money Market Account vs Savings and CDs Compared

Money market accounts are a type of savings account that earns interest, but they often come with some conditions, such as requiring a minimum balance.

You can earn interest on your money with a money market account, but the rates are typically lower than what you'd get from a certificate of deposit (CD).

Money market accounts often come with debit cards and checks, making it easy to access your money when you need it.

In contrast, savings accounts usually don't earn as much interest as money market accounts, but they're often more liquid, meaning you can access your money at any time.

Money market accounts often have higher interest rates than traditional savings accounts, but the rates can vary depending on the institution and market conditions.

Certificates of deposit (CDs) are time deposits offered by banks with a fixed interest rate and maturity date, but they often come with penalties for early withdrawal.

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A money market account is a type of savings account that offers a higher interest rate than a traditional savings account. It's a hybrid of a checking and savings account, designed to provide flexibility and earning potential.

You can open a money market account with a minimum balance requirement, typically around $2,500. This is higher than the minimum balance required for a traditional savings account.

Money market accounts often come with checks and debit cards, allowing you to access your funds easily. However, some accounts may limit certain monthly transactions, like online transfers and outgoing checks.

One of the benefits of a money market account is the ability to earn interest on your balance. The interest rate is usually higher than a traditional savings account, but it may be variable, meaning it can fluctuate as market conditions change.

Here are some common features of money market accounts:

Money market accounts offer a range of benefits and features that make them an attractive option for savers.

One of the main advantages of money market accounts is that they often provide a higher interest rate than traditional savings accounts. This means you can earn more money on your savings over time.

You can also access your money with ease, thanks to debit cards and ATMs. Some money market accounts even offer check-writing privileges, giving you more flexibility to manage your finances.

Another key benefit of money market accounts is the protection they offer. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per FDIC-insured bank, per ownership category.

Here are some examples of how money market accounts can be structured to offer varying interest rates based on your balance:

Money market accounts are also generally more flexible than certificates of deposit (CDs), which require you to lock your money in for a set term. This means you can access your money when you need it, without penalty.

Some money market accounts also offer federal insurance protection, which covers certain types of accounts up to $250,000 per depositor, per bank. Joint accounts are insured for $500,000.

Some money market accounts come with fees that can eat into your earnings. Monthly maintenance fees are a common charge, but they can be waived if you meet certain requirements, like maintaining a minimum daily balance.

The Elevate Money Market Account has a $25 monthly service charge that's waived if you keep at least $10,000 in your account daily. This is a good incentive to keep your account balanced.

You should also be aware of other fees, such as overdraft item fees, which can add up quickly. Standard or expedited ACH transfers, incoming wires, and official/cashier's checks also come with fees.

If you prefer paper statements, be aware that there's a $3 fee, but you can avoid this by switching to eStatements only. This small change can save you some money over time.

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If the money market account's rate is higher than your savings account, it's worth considering an MMA. Savings accounts, on the other hand, are a good choice if your bank pays the same or better rate on its standard savings account.

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Money market accounts are not the only option, though. You can also consider other types of accounts, such as a checking or certificate of deposit (CD) account. But keep in mind that a CD account has a fixed interest rate, whereas a money market account's rate is variable.

Here's a comparison of money market accounts with other types of accounts:

A savings account is a good option if you want easy access to your money, but be aware that interest rates are usually the lowest among all three options.

Jamal's scenario shows that a savings account can still earn interest, as he put $3,000 in a separate savings account to earn interest for his vacation goal.

The interest rate on a CD is usually the highest, but you agree to keep the money in the account for several months or years, and you can't withdraw or deposit money until the term is over.

A CD earns the highest interest rate because you're committing to leave your money in the account for a set period of time.

If you need to access your money regularly, a savings account or money market account might be a better choice, as you can withdraw or deposit money as needed.

Jamal put $60,000 in a one-year CD with a 3% interest rate, which earned him another $1,800 for the down payment on his house.

Here's a quick comparison of savings accounts and CDs:

Overall, a CD makes sense if you have a large cash balance and can commit to leaving it in the account for a set period of time, but a savings account or money market account might be a better choice if you need regular access to your money.

Money market accounts have several alternatives, but each has its own set of rules and benefits. Savings accounts, for instance, usually have the lowest interest rates but come with no early withdrawal penalties.

A CD (Certificate of Deposit) typically offers the highest interest rate, but you'll need to keep your money locked in for several months or years to avoid penalties. You can't withdraw or deposit money from a CD, making it less flexible than a money market account.

Savings accounts are often less expensive to maintain than money market accounts, with lower or no minimum balance requirements. However, they usually come with no check-writing privileges or debit cards.

Money market mutual funds are not the same as money market accounts, as they can lose value if the market falls. Unlike money market accounts, they're not federally insured by the FDIC or NCUA.

Here's a comparison of money market accounts with other types of accounts:

Money market accounts typically offer higher interest rates than savings accounts, with the average interest rate for an MMA in July 2024 being 0.66% compared to 0.45% for a savings account.

High-Yield Checking is a type of account that offers interest rates rivaling those of money market accounts.

These accounts often have more complicated requirements, such as a minimum number of debit transactions each month.

They also impose a cap on the interest rate, for example $5,000, above which the high-interest rate does not apply.

High-Yield Checking accounts work similarly to regular checking accounts, with unlimited checks, a debit card, ATM access, and FDIC or NCUA insurance.

For more insights, see: How Does a High Yield Saving Account Work

CDs are a type of savings account with a fixed duration, such as three, six, nine, or 12 months, or multiple years up to 10.

In exchange for locking in their money for that period, depositors generally get a higher rate of interest than they would with a regular savings account.

However, if you withdraw your money (or part of it) early, you'll pay a penalty, usually in the form of lost interest.

Some CDs, known as liquid CDs, don’t penalize depositors for early withdrawals but pay a lower rate of interest.

CDs are FDIC- or NCUA-insured, which means your deposits are protected up to $250,000.

You typically can't write checks, withdraw funds with a debit card, or add to the balance after the initial purchase with a CD.

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Mutual Funds are a type of investment that's often misunderstood.

They're not insured by the FDIC or NCUA, unlike bank and credit union accounts. Money market mutual funds, in particular, invest in safe short-term vehicles like CDs, government securities, and commercial paper, making them very low-risk.

The returns on money market mutual funds tend to be higher than those on money market accounts, but they can also place limits on withdrawals or require minimum check amounts.

Money market mutual funds are a mutual fund that invests in highly liquid short-term assets, and they're not a type of deposit account like money market accounts are.

Additional reading: Types of Money Market Funds

If your bank pays the same rate on its standard savings account as a money market account, it might be worth sticking with the savings account. This is especially true if your goal is to simply park your funds and watch your bank balance grow.

The average interest rate for a savings account is about 0.45%, which is lower than the average money market account rate of 0.66%. This means you'll earn less interest with a savings account, but it's a more straightforward option with fewer rules to worry about.

Many savings accounts are also FDIC-insured, which provides an added layer of security for your deposits. This is a big plus, especially if you're concerned about the safety of your money.

Savings accounts often have fewer restrictions than money market accounts, which can be a good thing if you just want a simple place to store your cash. Just be aware that you may not earn as much interest with a savings account.

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