Have you ever been told, “Make sure you have something for a rainy day.”? At some point or another, it is a great idea to open a savings account because you truly do need extra money for any unforeseen expenses that might occur. This need makes savings accounts extremely important to our everyday finances.
However, there are different types of savings accounts, and you must pick an account that aligns with your personal goals or needs, such as a money market account. According to Nerd Wallet, this type of savings account helps grow your account balance faster than average savings rates and it often requires a minimum deposit. We’re going to answer some of the most frequently asked questions, so you know the major differences between a money market account and a savings account, and which one is best for you.
Is a money market account better than a savings account?
One is not necessarily better than the other. The account you choose should depend on your current savings goals. However, money market accounts typically earn higher interest rates. According to the Federal Deposit Insurance Corporation (FDIC), earned interest rates can be more than twice as high for money market accounts depending on how much you invest. Basically, you should strongly consider a money market account, if you’re saving for mid-term goals, that will take more than a few years but less than a decade. If your saving goals are more short-term, you should consider a savings account.
Is my money safe in a money market savings account?
Yes, your money is safe. Money market accounts are generally a safe investment because they are insured by the FDIC or the National Credit Union Administration (NCUA). The independent agency insured deposits up to $250,000 per depositor for member firms. So, if a bank or institution fails, your investment is covered.
What are the advantages and disadvantages of a money market account?
Here are the main advantages and disadvantages of a money market account.
Interest rates are often tiered, which means they depend on the balance in your account. You would qualify for the highest rate only if you have $10,000 or more on deposit.
The interest you earn in a money market account is reduced by federal income taxes.
Money market accounts usually require a higher minimum balance, sometimes as much as $10,000. You could be hit with fines if your balance falls beneath the requirement.
Overall, savings accounts and money market accounts are similar because they both help you save money, earn interest, and allow you to write checks. The major differences include minimum balance requirements, earned interest rates, check-writing ability, and saving goals term (i.e. short-term, mid-term, long-term). It is best to make the decision based on your personal needs.