A recent survey showed that 20% of Americans are saving absolutely nothing, despite the economy improving. And the long-term savings situation isn’t much better, either. Another study showed that nearly 70% of Americans had less than $1,000 in their savings account.
It’s time to start putting some money away.
But the question is, where do you put your savings? In this article, I’ll review both Money Market Accounts (MMAs) and traditional savings accounts so you can see which of these two options are best for you.
Right now there are some excellent rates available for both, so I would encourage you to evaluate your savings situation the minute you’re done reading!
MMA And Savings Accounts Overview
|Money Market Accounts||Savings Accounts|
|Key Features||- Offers a higher interest rate than savings accounts|
- Functions like a checking account -- you can write checks and withdraw cash
- Typically requires a high minimum balance to get the best APY
|- Offers low interest rates (unless you open a high-interest online savings account)
- No minimum balance for most savings accounts
- More liquid than MMAs -- you can easily transfer money between savings and checking accounts
|Best For||- High account balances|
- Those looking for a higher interest rate
|- Those who want easier access to their money (savings accounts are more liquid than MMAs)
- Those with low minimum balances in their accounts
|Best Account||CIT Bank Money Market Account||Aspiration
What is a Money Market Account (MMA)?
It’s similar to savings accounts
A Money Market Account is a lot like a savings account. You deposit a certain amount of money, and you get a slight return on that money. Typically, you’ll see a better rate on a Money Market Account than that of a traditional savings account (more on this below), particularly when you have a bigger balance.
This rate is a very low risk for them. The lending bank is then able to lend your money out elsewhere or invest it in other ways. That’s how they’re able to offer you that small return, whatever it may be. The bank’s goal with that money is to make then a rate of return that’s higher than what they are paying you.
Money Market Accounts are insured by the FDIC (NCUSIF insured if you’re using a credit union), so if your bank folds up, you’ll still get your money (up to the insurance limitations of course). Because of these factors, MMAs are very safe and come with almost no risk at all. It’s an excellent way to build savings and have easy access to your money when you need it.
They also function like checking accounts
Much like a checking account, you can write checks and withdraw cash on most MMAs. Some even come with debit cards that you can use for direct purchases.
They are not money market funds
Differentiating between a Money Market Account and a fund is essential. Money market funds hold securities on your behalf of the money market. Money market funds are NOT FDIC-insured.
Funds can be more difficult to access, and they may hold things like stocks, bonds, or mutual funds. Keep in mind that with a money market fund, it’ll be more difficult to access your money when you need it.
And it will carry a higher risk, but also, a higher return. Like MMAs, these rates are very stable. With a rate guaranteed by the institution, you won’t see significant long-term growth.
But, these rates will generally keep pace with (or exceed) inflation. Remember, inflation has been about 3%to 4% on an annual basis.
Pros and cons of MMAs
The interest rate you get on a Money Market Account tends to fall somewhere in between a traditional savings account and a certificate of deposit (CD). That makes a MMA an excellent tool for storing your cash.
Like I said before, you’re not going to secure your retirement by putting money in a MMA, but you will find a spot to keep cash that may at least be on pace with inflation rates. It doesn’t sound super sexy, but when you consider the other benefits (and frankly the lack of other options), this higher interest rate becomes much more appealing.
Having the safety of FDIC and NCUSIF insurance with a Money Market Account brings a level of comfortability for me. The National Credit Union Administration says that
the National Credit Union Share Insurance Fund was created by Congress in 1970 to insure member’s deposits in federally insured credit unions. Administered by the NCUA, the Share Insurance Fund insures individual accounts up to $250,000, and a member’s interest in all joint accounts combined is insured up to $250,000.
So you’re good to go with coverage. And honestly, if you have more than a quarter million dollars, you’re better off putting some of that money into investments anyway. So I wouldn’t worry about the safety of your deposits.
Money Market Accounts are liquid, but typically not too liquid. Some accounts will let you draw on the money immediately, but some require a couple of days to get you the money. I think this is a perfect balance. Being able to access your emergency funds immediately and have a respectable rate of return is what makes having a Money Market Account so attractive.
Con: Large minimum balance
One of the biggest downsides to MMAs are the large minimum balances required to get the best APY. You really need to read the fine print before signing up for an account because you could think you’re getting a great rate, but in reality, you’ll need a large sum of money to meet the qualifications for that rate.
Some Money Market Accounts today require anywhere from $500 all the way up to $25,000 in order to get the best possible rate.
Con: Transaction limits
Most Money Market Accounts will fall under Regulation D, a federal rule that was put in place to help banks ensure they have enough cash reserves on hand. This is partially the reason you get a better interest rate—because you can only withdraw money a certain number of times per month before getting a fee.
This includes purchases, online transfers, and overdraft charges. Some banks may have even stricter guidelines, too. For instance, Regulation D doesn’t require that ATM withdrawals are counted toward your transaction limit, but some banks might make it a requirement for MMAs. Usually, the limit is six transactions per month but check with your bank to see what their rules are.
Regardless, this is obviously a downside if you’re using the account for more frequent purchases or withdrawals.
What is a savings account?
A savings account is an account held by a bank or other financial institution that will pay you interest on your deposits. It’s like a Money Market Account in most ways, but there are a few slight differences.
Credit unions and banks usually offer basic savings accounts, holding the money in that account for the depositor and paying interest on the balance. Depositors can withdraw funds from their savings account at any time. Because of this, banks pay very little interest on savings account balances.
Because of the ease of transferring funds, most banks will limit the number of withdrawals per month that can be made from a savings account, in addition to complying with Reg D mentioned above.
Savings accounts can be opened at traditional, brick and mortar banks or online. You’ll tend to get a better rate online since online financial services apps (like Chime) have much lower overhead than a brick and mortar bank. With lower costs, they tend to be able to offer better rates. The downside, though, would be no face-to-face interaction with a bank employee should you need that.
Pros and cons of savings accounts
A savings account features most of the same pros and cons as a Money Market Account, with a few slight differences.
Like Money Market Accounts, savings accounts are considered safe because the FDIC insures them for up to $250,000. According to the FDIC,
FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, up to at least $250,000.
A savings account can be more or less liquid, depending on the specific type of account you have. Usually, savings accounts are very liquid, since you can get one at the same bank where you have a checking account and you can easily transfer money from your savings to your checking.
Pro: No minimum balance
While the rates are much worse than Money Market Accounts (see below), you won’t have to worry about having a minimum balance to qualify for something.
Most savings accounts will give you a slightly better rate for having more money in the account, but it’s not as dramatic as it is with MMAs. So if you’re just looking to sock away a few thousand dollars and need the money quickly, a savings account might work well for you.
The rates on savings accounts are typically far worse than Money Market Accounts. In fact, CNBC cites data that shows the average interest rate on a savings account is only 0.17%. Yuck.
Which should you choose?
What you choose really depends. Here’s my take on both:
Money Market Account
Between the two, this is the better option for most people. You get better rates and enjoy most of the same benefits. In fact, with a Money Market Account, you can almost always write checks out of it. So there’s an added bonus right there.
If you can meet the minimum balances required, you’ll have a nice, safe, and liquid place to store your cash with a MMA.
I would say choose a traditional savings account if you don’t meet the minimum balance requirements to get a good rate with a Money Market Account. MMAs can be less liquid, so if you’re going to get the same, or close to the same, rate on that product I would rather just have my money easily accessible with a savings account.
If you do go with a savings account, I highly recommend online savings accounts, as you’ll get better rates. Just check out the best ones below.
Best Money Market Accounts
CIT Bank Money Market Account
The CIT Bank Money Market Account is a great option if you want to open a Money Market Account.
The account minimum is only $100 and the rate is currently 0.55% APY—which is very competitive. This interest is earned on your entire daily balance. It’s also compounded daily and paid monthly. You’ll also pay no monthly service fees on this account. Promo: Deposit $15k and receive a bonus of 1-year Amazon Prime subscription-cash value of $139! Offer available for both new & existing customers.
Discover Bank Money Market Account
The Discover Bank Money Market Account is another one of our favorites. First of all, you can get cash fast at over 60,000 no-fee ATMs. They also don’t hide any fees because they don’t charge any fees!
For balances under $100,000, you’ll get a 0.50% APY. For balances $100,000 and over, you’ll get 0.55% APY. You can also access your money through ATMs, debit cards, or written checks.
The only downside to this account is the $2,500 minimum average balance requirement.
UFB Direct Money Market Account
You only need a minimum deposit of $25,000 for a high-interest money market account with UFB Direct. They’re currently offering 0.81% APY, which is one of the most competitive you’ll find.
Best of all, with the UFB Direct money market account, you get the same flexibility to withdraw funds that you’d enjoy with a savings account. You can write checks and you’ll even get a complimentary Visa® debit card with your account.
You will need to keep a minimum average daily balance of at least $5,000 to continue to enjoy the benefits of the account, including no monthly maintenance fees.
Best savings accounts
With rates at 0.50% Annual Percentage Yield (APY) - 8x the national average!, you’ll find you can make more than other savings and money market accounts with Chime’s saving account. Your savings account automatically comes with a checking account, which can be a standard account or one to build your credit. Neither of these accounts requires a credit check, charge any service, monthly, or annual fees, or require a minimum balance.
Whenever you use your checking account’s debit card for spending, the amount is rounded up to the nearest dollar. That extra money goes straight into your savings account to help you get started.Chime Disclosure - Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
1Chime cannot guarantee when files are sent by the IRS and funds can be made available.
^Early access to direct deposit funds depends on payer
Chime APY Disclosure - 1The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of November 1, 2021. No minimum balance required. Must have $0.01 in savings to earn interest. 2The average national savings account interest rate of 0.06% is determined by FDIC as of November 1, 2021 based on a simple average of rates paid (uses annual percentage yield) by all insured depository institutions and branches for which data are available. Visit https://www.fdic.gov/regulations/resources/rates/ to learn more.
It’s not a savings or a money market account, but OnJuno’s online checking account is 100% worth mentioning solely for the high Bonus Rate. With a 1.20% Bonus, OnJuno’s interest beats every money market and savings account on this list. But this account is best for balances up to $5,000. You won’t earn the same Bonus Rate on amounts over $5,000. You’ll only earn 0.25%, and amounts over $100,000 earn no interest at all.
Your earnings continue when you spend from your OnJuno account. You can choose five merchants from a list of participating businesses and earn 5% cash back on every dollar you spend up to $500 each year. If you upgrade to a Metal Membership, you’ll earn 5% back on purchases up to $3,000 a year.
You’ll get up to 1.00% APY (Variable) with Aspiration Plus which comes with other bonus features you won’t get with its regular plan. They include up to 10% cash back on your purchases at Millennial-friendly brands such as Warby Parker and Blue Apron, along with 0.5% at Target, Walmart, and CVS. You’ll pay a $15 monthly fee for the Plus account, but you can save $2.50 a month by paying yearly instead of monthly.
You’ll also get a $200 welcome bonus with Aspiration Plus when you spend $1,000 in the first 60 days.
If you prefer a fee-free option, Aspiration’s no interest Spend & Save account allows you to choose your own monthly fee and pay a monthly fee that you think is fair. With this plan, you’ll earn a slightly lower (albeit still generous) $150 welcome bonus when you spend $1,000 in the first 60 days.
With both plans, you’ll enjoy cash back and fee-free ATM withdrawals at up to 55,000 ATMs located around the globe.
CIT Bank Savings Builder
The CIT Bank Savings Builder is not only one of our favorite savings accounts, but you can earn a better rate than most Money Market Accounts if you follow the guidelines. There are two ways to get the best rate – which is currently 0.45% APY:
- You can open an account with a minimum of $100 and deposit at least $100 per month thereafter, which will continuously earn you the highest rate.
- You can open an account with a minimum of $25,000.
Assuming you meet the qualifications, you’ll get 0.45% APY from the day the account is opened through the first Evaluation Day. There are no account opening or maintenance fees and it has daily compounding interest to maximize your earning potential.
Ponce Bank Money Market Deposit Account
The Ponce Bank Money Market Deposit Account offers a unique and compelling combo of a low minimum deposit ($1) and high interest (0.75% APY).
Plus, you’ll be banking with a Community Development Financial Institution (CDFI), meaning your funds will help Ponce Bank support the growth of local underserved communities.
Discover Bank Online Savings Account
The Discover Online Savings Account is another awesome savings account. You’ll get 0.60% APY with no monthly minimum balance requirements.
There are no monthly maintenance fees and your interest compounds daily to really accelerate your account.
You can find a couple more down below based on your specific zip code:
As you can see, it pays to take a little time to research your options. In most cases, a Money Market Account will be your best bet, but currently (and with our picks above) there are some excellent options for savings accounts, too.
Do your research and determine what option is best for you. Regardless, the odds are you’ll be better off exploring one of these options than what you currently have.