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Money Market vs. Savings: Which Account Should I Choose?

When you were little, saving looked like putting every dime of your allowance (or commission) in a pink piggy bank. The plug at the bottom always seemed impossible to open and the slit at the top too small for your chubby little fingers to fit through. So when the ice cream truck rolled through your neighborhood, it seemed impossible to get your money out—and for good reason. Whether you realized it or not, that hard-to-open piggy bank was teaching you how to save your money (and leave it alone).

And now that you’re older and saving for adult things like an emergency fund, you can’t afford to pull the plug on the piggy bank anymore. Now you need a better place to park your money. You’ve probably heard that your best two options for saving are money market accounts and savings accounts.

But which is better? Don’t worry—we’ve got the scoop on when it’s right for you to use a money market vs. savings account.

What Is a Savings Account?

savings account is a free account offered by your local bank that gives you a place to store your hard-earned money you won’t (or shouldn’t) be touching for a while. When you open an account at the bank, they might ask you to keep a minimum balance in there at all times. You’ll earn a (tiny) rate of interest and your bank might even throw in a free checking account.

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Think of it this way: Checking account and savings accounts are inseparable best buds. They do everything together. But other than having your checking account’s back in case of an overdraft, the savings account can actually earn you money. If we’re honest, it’s nothing to write home about. We’re talking pennies on the dollar . . . but that’s okay!

In this case, you’re not worried about your rate of return. Think of this account as a safer version of your beloved childhood piggy bank.

From an everyday, run-of-the-mill savings account, you can expect:

  • a limited number of transfers (usually six) and withdrawals per month
  • a small rate of interest earning you pennies on the dollar
  • a safe place to keep money you won’t be using for a little while—ahem, like your starter emergency fund

Take note of any fees associated with a new savings account. Many times, you’ll have to meet a minimum balance in order to escape them.

What Is a Money Market Account?

money market account is a type of savings account that gives you the opportunity to earn a higher rate of interest on your account balance while giving you even more access to your money through checks and even a debit card. Think of the money market account and the savings account as second cousins. They’ve both got the same DNA . . . They just look (and act) a little different.

That being said, there are a few places you could open your money market account:

  1. Your local bank
  2. An online bank
  3. A mutual fund company

Like we said earlier, you have the opportunity to earn a higher rate of interest on your account balance, keep your money safe and sound, and have more access to your account than a typical savings account. But listen closely: Your main goal in using a money market account isn’t to make money. That comes later.

Keep in mind that if you’re still working to pay off all of your debt with the debt snowball, you might not want to open a money market account with a mutual fund company. There’s a higher risk of losing your hard-saved money in the short term and less freedom to cover those unexpected emergencies.

Money Market vs. Savings: What’s the Difference?

Both money market accounts and savings accounts are great for stockpiling cash. The biggest difference you’ll find between money market accounts and savings accounts is the amount of access you can have to your money. A savings account limits you to six or so transactions per month, while a money market account gives you the freedom—and flexibility—of writing checks. They sometimes even include a debit card.

That being said, there are different situations where one type of account would be more beneficial for you than the other. But before we get ahead of ourselves, let’s compare what they each have to offer: 

money market vs savings account

Both bank money market accounts and savings accounts protect you in case your bank goes under. The FDIC, or Federal Deposit Insurance Corporation, will cover your deposits in both of these accounts all the way up to $250,000. But not all money market accounts have this luxury.

In the case of a mutual fund money market account (not a money market account with your local bank), you’re taking the risk of losing your money. If you choose to go with a mutual fund money market account, you’ll also want to check its flexibility and restrictions. If you’re not ready to start investing, you’ll want to stick with a trusted bank.

Both accounts also give you the opportunity to earn interest—a really small amount of interest, depending on your bank’s current rates. But don’t forget: This is a savings account. You’re not trying to make money on this money. You’re trying to save for specific purposes like emergencies, a down payment on a house, a family vacation, or even next year’s Christmas fund.

Which Account Should I Choose?

If you’re on Baby Step 1 and just starting to save that first $1,000 for your emergency fund, the easiest place to put it would be your savings account. You’ll still be able to access it, but it’ll be a little harder than swiping a card or writing a check to get to it. Although, you will have access to make online transfers between your checking and savings accounts. (Remember: Your checking and savings accounts are best buds). This is where discipline comes in . . . Don’t be tempted to touch it!

If you’re working on Baby Step 3 (saving three to six months of expenses in a fully funded emergency fund), congratulations! As you see those dollar signs add up, you’ll want to put that cash in a money market account. Not only will it be safe and secure, but you’ll also have the access you need to cover you and your family in case life throws a surprise your way.

No matter if you’re on Baby Step 1, 3 or 7, saving for life’s big events is always a good idea. Download our free budgeting app, EveryDollar, to help you create a budget so you can start saving now!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.