Money market account and high-yield savings account

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Securing a higher interest rate for your savings is a critical component of growing your wealth and increasing your emergency fund. Leaving your money in a brick-and-mortar bank’s savings account can hinder these goals and slow growth. That’s because the average annual percentage yield (APY) for a traditional savings account in the United States is a paltry 0.47%.

Fortunately, today there is no shortage of account options that offer competitive APYs. But choosing the right one for you depends on several factors. In this guide, we discuss two popular options: money market accounts and high-yield savings accounts, which provide far better APYs than even the best savings accounts.

Read on to learn the differences between money market accounts and high-yield savings accounts so you can make a more informed decision about which choice best suits your needs.

What is a money market account?

A money market account, or MMA, is a type of savings vehicle that is ideal for short-term savings goals. Like other deposit accounts, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), meaning balances are protected up to $250,000 per depositor. Offered by both banks and credit unions, these accounts pay higher interest rates than regular savings accounts. This is true regardless of the Federal Reserve’s monetary policy.

Because they have variable interest rates, unlike certificates of deposit (CDs), for example, money market account rates can change without notice to the customer. However, unlike CDs, they offer more liquidity if you need quick access to your money. (CDs impose penalties for early withdrawal.)

Account holders have the ability to write checks and use ATM cards, making them ideal replacements for traditional savings and checking accounts that offer lower APYs. However, some financial institutions may impose limits on the number of withdrawals customers can make from a money market account each month.

Compared to traditional checking and savings accounts, money market accounts typically require higher opening deposits and minimum balances to benefit from the higher APYs. Financial institutions that offer these accounts also often charge fees to customer accounts if certain minimum balances are not maintained.

It is important not to confuse money market accounts with money market funds, the latter are a type of mutual fund that invests in short-term debt securities such as US Treasury bills.

What is a High Yield Savings Account?

Another type of savings vehicle, high-yield savings accounts offer customers the ability to grow their money with little to no risk, while receiving higher returns than most accounts. Like money market accounts, high-yield savings accounts are FDIC and NCUA insured, protect savings up to $250,000 per depositor, have variable interest rates, and are offered by both banks and credit unions. Additionally, these types of accounts may have restrictions on the number of withdrawals you can make each month.

Unlike money market accounts, high-yield savings accounts often don’t require minimum balances to take advantage of the higher APYs on offer, and the banks and credit unions that offer them to customers typically don’t charge monthly maintenance fees.

These accounts are generally offered by online-only banks. Because of this, financial institutions that offer them are able to pass on the savings they receive from not maintaining physical locations to their customers in the form of higher APYs. However, because they are usually offered by online-only banks and credit unions, high-yield savings accounts have fewer withdrawal options for account holders, including limited ATM networks and the inability to write checks.

Read our guide to the best high-yield savings accounts to learn more.

Money market account vs high yield savings account

Like any personal finance decision, choosing between a money market account and a high-yield savings account should be determined by which one best suits your individual needs. That decision can be aided by a better understanding of some key differences between the two types of savings accounts.

Minimum balance

The decision between the two account types may depend on how much money you plan to fund the account with and the balance you are able to maintain. While the best high-yield savings accounts typically have no initial deposit requirements or minimum balance requirements, to get the most competitive rates available from a money market account, you may need to meet certain minimums. For example, to get the highest APY offered by CFG Bank, you will need to make an initial deposit of $1,000 and maintain a minimum account balance of $1,000.

Additionally, while most HYSAs don’t require such minimums, some offer bonuses if you can meet a certain initial minimum deposit amount or set up a recurring direct deposit. Such bonuses can reach up to several hundred dollars.

Ease of access

According to a 2023 Dyanta Banking Behaviors Survey, 40% of respondents routinely make withdrawals to cover fixed bills (e.g. rent) and 38% do so for recurring variable expenses (e.g. food). If you don’t use online bill pay or take advantage of the best cash back credit cards to cover your everyday expenses, you may fall into this camp.

If so, a money market account may be better suited to you as it provides easier access to your funds. While high-yield savings often have limited access to ATMs, money market accounts generally offer unlimited ATM withdrawals, allow you to make debit card payments, and write checks, a feature you can’t get with a high-yield savings account. High performance.

Example APY

Currently, the best money market accounts and high-yield savings accounts offer APYs between 4% and 6%, which is nearly 11 times higher than the yields offered by traditional savings accounts. To illustrate the difference this can make, consider the following:

• MMA or HYSA: The same $5,000 deposit into an account that provides a 5% APY with interest compounded daily and paid monthly will see your balance grow to $5,250 at the end of one year.

• Traditional savings account: A $5,000 deposit into an account that provides a 0.47% APY with interest compounded daily and paid monthly will see your balance grow to $5,023.50 at the end of one year.

But when it comes to money market accounts versus high-yield savings accounts, the latter have a slight advantage. While high-yield savings accounts don’t let you spend the money in your account directly, they reward customers with high interest rates that often exceed those offered by money market accounts.

Money Market Summary of Money vs. High Yield Savings Account

If you’re looking to maximize the return on your savings, options like money market accounts and high-yield savings offer exponential growth opportunities compared to common bank savings accounts. Regardless of the Fed’s interest rate policy, this will likely always be the case. In addition to higher APYs, these types of savings accounts offer the same security as accounts covered by NCUA and FDIC insurance.

Which account is best for you depends on your personal needs, including whether you need easy access to your money, ability to write checks, or a low minimum deposit requirement. Depending on whether you need easy access to your funds, ability to write checks, or be able to meet minimum deposit requirements or higher minimum balances, the type of account best suited to you will be determined by your goal personal finance. But when it comes to financial products, it’s hard to find a better combination of high APYs and low-to-no risk than you’ll get with either account type.