Money market accounts and savings accounts are two types of popular investments you can use to grow your savings. There are some important differences, however, that may make one a better choice than the other for your needs.
What Is the Difference Between Money Market and Savings Accounts?
Money market accounts and savings accounts both allow you to earn interest on the money you deposit. How you access your money and the minimum balance requirement are the primary factors in choosing between these accounts.
Interest Rates
Money market accounts usually have higher interest rates than savings accounts. This is an important consideration if you want to maximize your earnings.
If you are looking for a great rate, credit unions usually offer better rates than banks. Because they are nonprofit organizations, they don’t have to worry about earning a profit for shareholders which allows them to offer better rates and lower (or no) fees.
Minimum Balance Requirements
Money market accounts usually have higher minimum balance requirements than savings accounts. This is why they have higher interest rates. Minimum balance requirements will vary depending on the financial institution.
Deposit Insurance
Both money market accounts and savings accounts are insured by the federal government for up to $250,000. An account will be insured by either the Federal Deposit Insurance Corporation (FDIC) if it’s with a bank, or the National Credit Union Administration (NCUA) if it’s with a credit union.
Checking Privileges
Money market accounts come with check writing privileges. An account may also come with a debit card that allows you to make direct purchases. With a savings account, you will need to first transfer funds to your checking account before you can write a check.
Monthly Fees
Both money market accounts and savings accounts may have monthly account maintenance fees, depending on the financial institution. Many credit unions offer accounts with either low or no fees. A monthly fee will limit your earnings potential, so it’s best to choose an account that doesn’t have one, if possible.
ATM Use
Savings accounts usually don’t come with debit or ATM cards. Depending on the financial institution, a money market account may allow you to make withdrawals with an ATM.
Withdrawal Limits
Both money market accounts and savings accounts have monthly withdrawal limits. This is due to Regulation D, a federal regulation that was created to make sure banks and credit unions maintain reserves. Therefore, withdrawals from these accounts are usually limited to six per month.
Should You Choose a Money Market or Savings Account?
Due to their relatively low minimum balance requirements, savings accounts are great for when you want to grow your savings but you don’t qualify for a money market account. Although they aren’t as flexible as money market accounts, you can still earn interest on your savings and transfer funds to your checking account when needed.
Money market accounts are ideal for when you can meet the minimum balance requirement. They allow you to earn a higher interest rate, write checks, and make purchases with a debit card which makes it easy to spend the money in your account.
How to Open a Money Market Account
Opening a money market account is simple. You can get started in just a few minutes at a local branch or you might also be able to open an account online. The following steps outline the process.
1. Shop Around
Before you open a money market account, it's important to do some comparison shopping to make sure you are getting a great deal. Be sure to find out which accounts don't have any fees so you can keep all of the interest you earn. Comparing the annual percentage yields (APYs) will also help you find the accounts that earn the most interest.
2. Gather Your Documents
Federal regulations require banks and credit unions to acquire and verify information about your identity when opening an account to prevent fraud and money laundering. Whether you are applying in person or online, you will need to provide a valid government ID. This may include a driver's license, passport, or another form of identification.
Additional information you will need to provide includes your:
- Full name
- Date of birth
- Home address
- Social security number
3. Submit an Application
If you are applying for a money market account in person, a representative will enter the required information for you in the system. If you are opening an account online, you will enter the necessary information and submit the application yourself. Approval notifications are usually received within minutes.
4. Fund Your Account
After your money market account is established, you will need to deposit money into it. This is usually done by writing a check, transferring money from another account, or wiring money. After funding your account, it may take several days before you can write checks from it or make purchases with the debit card.
How to Choose the Right Money Market Account
If you are considering opening a money market account, keep in mind that there are different kinds of accounts with different features. Because of this, it’s important to carefully review each account to see which one is best for your needs. Credit Union of America, for example, offers two money market accounts—Balance Boost and Performance Plus.
A Balance Boost account is ideal for those who want to save but don't have a high initial deposit. They are great options for teens, for example, who may want to save for a car, college, or something else. You only need $100 to open an account.
Performance Plus accounts require a minimum deposit of $25,000. Dividends are paid monthly, and the APY increases based on how much you have in the account.
Money Market Accounts with Credit Union of America
If you are thinking about opening a money market account, Credit Union of America offers two great options to consider—our Balance Boost and Performance Plus accounts. You can apply in person or online.
Click on the following link to learn more about our money market accounts.
SEE OUR MONEY MARKET ACCOUNTS OPTIONS & BENEFITS
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