If you want to earn more from your savings in an FDIC-insured account, both high-yield savings and money market accounts are great options. But there are some differences between the two that may make one better for your lifestyle and financial goals than the other. Here’s what they are, and how to determine which is best for you.
What is a money market account?
A money market account, or MMA, is a type of deposit account that pays you more interest on your money than a traditional savings account. Top money market accounts currently offer variable annual percentage yields (APYs) just over 4.0%. MMAs also have the benefit of federal insurance protection.
Unlike many high-interest savings accounts, a money market account gives you easier access to your money. You’ll have check-writing privileges and an ATM card, both of which let you spend directly from the account itself.
On the downside, MMAs tend to have more requirements than other types of deposit accounts. You’re likely to see higher minimum account balances, high monthly maintenance fees, and low limits on the number of times you can actually spend from the account. The federal government requires banks to allow you to transfer money and write checks up to six times per month. Withdraw beyond that, and you could incur a fee.
(Note that money market accounts are different from money market funds, or MMFs. An MMF is a mutual fund that can be purchased through an investment fund company, brokerage firm, or bank. Unlike an MMA, which is a deposit account, an MMF is an investment product tied to the stock market.)
What is a high-yield savings account?
A high-yield savings account is similar to an MMA in that it’s an interest-bearing bank account that pays more than a traditional savings account. Like money market accounts, top high-yield savings accounts offer APYs over 4%. These interest rates are also likely to be a little higher than the ones you’ll be offered with an MMA.
Unlike a money market account, however, your high-yield savings account won’t have a checkbook, and isn't likely to have an ATM card. Money market accounts and high-yield savings accounts are held to similar regulations, and banks and financial institutions are only required to let you transfer money from a high-yield savings account up to six times a month without fees.
That said, the fees aren’t likely to be as high as those on money market accounts, nor are the account minimums (some high-yield accounts require a minimum opening deposit or require you to set up direct deposits to get the highest rates). You can find some high-yield savings accounts with no minimum balance at all, and some offer unlimited transfers.
Benefits of a high-yield savings account
Maintaining a high-yield savings account is a great way to earn high interest in a safe, FDIC-insured environment. Here are some of the biggest advantages.
High-interest. High-yield savings accounts pay significantly more than traditional savings accounts, and, generally, offer higher APYs than money market accounts.
Federal insurance. Unlike other investment vehicles, high-yield savings accounts are protected by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Both guarantee that you’ll be reimbursed for your savings, up to $250,000 per depositor, in case of bank failure.
Can access money if you need to. Federal Reserve regulations allow you to move your money around six times per month without fees. Beyond that, the cost of transferring money varies by financial institution.
Lower fees. If fees are incurred, they’re likely to be lower than the fees associated with money market accounts.
Lower minimum account balances. High-yield savings accounts often require no minimum account balance. Even if they do, the minimum balance is usually lower than what you’d need to maintain in money market savings.
Lower initial deposit. While you may need to make a minimum deposit to open your account, this is likely to be a lower amount of money than what you’d need to open an MMA. That can make high-yield savings accounts a better choice for newer savers.
Benefits of a money market savings account
If you’re looking for flexibility, money market savings accounts have the edge. Here are some other benefits you should know about.
Federal insurance: Like high-yield savings accounts, MMAs are typically (but not always) protected by federal insurance providers. Look for “Member NCUA” or “Member FDIC” on your account disclosures.
Better flexibility: A money market account gives you far more flexibility and access than a high-yield savings account, especially if you have multiple accounts at the same bank. Most money market accounts allow you to write checks and use an ATM card, while many high-yield savings accounts require you to transfer funds to an external checking account before you can do those things.
Physical locations: Money market accounts are generally offered by national financial institutions with multiple brick-and-mortar bank locations. Conversely, many top high-yield savings accounts are largely offered by online banks. So, if you like to do your banking in person, money market accounts come out ahead.
When to consider an alternative to both a money market and high-yield savings account
Both money market accounts and high-yield savings accounts are ideal for storing savings that you need easy access to but don’t expect to use immediately — like an emergency fund or savings for a down payment. If you’re looking to do any of the following, however, you may want to consider other types of accounts for your personal finance needs.
You want an account for everyday banking
Both money market accounts and high-yield savings accounts have withdrawal limits mandated by Regulation D, a federal law that specifies how financial services institutions must classify different types of deposit accounts. In practice, this means you can’t withdraw your money more than six times per month without incurring fees. High-yield savings accounts also rarely provide check-writing privileges or ATM cards. So if you’re looking for an account to handle your day-to-day banking needs, consider a high-interest checking account instead.
You’ll have trouble maintaining a minimum account balance
A common requirement for opening both types of accounts is maintaining a minimum daily or monthly balance. If you know that you’ll have trouble maintaining a minimum balance at all times, look for an account that doesn’t require any minimum.
You’re trying to build long-term wealth
Both the high-yield savings account and money market account are good options for short-term savings because they allow you to grow your money without giving up access to it. Still, neither account offers you enough to keep up with inflation. If you’re trying to build long-term wealth, consider products that offer higher returns — even if that means you lose access to the balance for some period of time.
You want guaranteed rates
One of the primary draws of high-yield accounts is their high APY, but these rates are subject to change without notice. That’s because they fluctuate in keeping with the Fed’s benchmark interest rate. The Fed may lower this rate during an economic downturn to make it cheaper for consumers to borrow or invest, and raise the rate to tackle inflation. (This happened in 2022, when the Fed rate rose to 4.5% — its highest level in 15 years.) If you want guaranteed rates, consider opening a CD instead.
Money market account or high-yield savings, which is right for me?
A money market account may be better for you if:
You want to have the option of writing checks.
You want to spend money directly from the account via ATM withdrawals.
You don’t mind potentially higher minimum balance requirements.
A high-yield savings account may be better for you if:
You want slightly higher rates of interest.
You don’t want to worry about maintaining a minimum balance (many high-yield savings accounts these days don’t require one).
You don’t expect to write checks from the account and have no need for a debit card.
Alternatives to money market and high-yield savings accounts
While money market accounts and high-yield savings accounts can offer higher interest rates, there are some other low-risk alternatives for saving your money and keeping it liquid. Some of these include:
Certificates of deposit: CDs are savings products that allow you to earn interest on a lump sum for a fixed period of time at a fixed interest rate. The only catch is that you can’t touch that money during that term period. While CDs are typically available for one- or two-year terms, some banks offer shorter term periods as well.
High-interest checking account: A high-interest checking account won’t give you the same high APY as an MMA or high-yield savings account, but their interest rates are still better than the national average. (Note that many high-interest checking accounts have a cap on the amount they’ll pay high rates on, so they’re not the best option for larger sums.)
IRA savings account: You can also store your short-term savings in an individual retirement account, or IRA. When you put your money into your account, just choose to leave it in cash instead of investing it. You’ll get better rates keeping your money here than you would on a standard savings account. Where IRA savings accounts get tricky is with taxation: while you won’t pay tax on the money you deposit in this account, you will pay tax upon withdrawal, which only makes it a good option if you intend to keep your money in the account relatively long-term.
Explore savings accounts on Navient Marketplace
Both high-yield savings accounts and money market accounts offer more in interest than your traditional savings account. Money market accounts have the edge in flexibility, but they generally require more money to maintain (I.e., higher minimums, fees, and initial deposit amounts). High-yield savings accounts may not offer checks or an ATM card, but you’ll probably earn slightly more interest and spend less money maintaining them.
Want to explore these accounts and more? Check out Navient Marketplace to compare, contrast, and determine which best suits your lifestyle.