November 01, 2021
If you’ve got some cash you’re looking to keep in a safe place and earn interest on, you may be considering a money market or a high-yield savings account. Both of these options offer the security of a standard savings account, but they typically pay higher interest rates. And they don’t require you to leave your money in them for a set period of time like a certificate of deposit.
A money market account (MMA) is an interest-bearing account offered by a bank or credit union. It typically pays a higher interest rate than a standard savings account; however, there may be requirements and restrictions associated with this type of account that a standard savings account does not have, which we’ll get into later.
It’s worth noting that a money market account is not the same thing as a money market fund (MMF), which is a highly liquid mutual fund with a relatively low level of risk. While an MMF may be low risk, it is still riskier than an MMA because your principal is not guaranteed like it is in a money market account.
A high-yield savings account is a savings account that yields a higher return than a standard savings account because it pays a higher interest rate—typically 20 -25 times the national average of standard savings accounts. Like a money market account, it typically has restrictions a standard savings account does not have, highlighted below.
These two types of accounts are, in fact, quite similar. The things they have in common include but are not limited to:
How these two types of accounts differ is mostly about the access you have to your money. The primary difference between an MMA and high-yield savings account is:
Deciding which, if any, of these higher-interest-bearing accounts is right for you depends on a number of factors, including but not limited to:
1. Which pays the highest interest rate?
If your primary objective is to earn as much interest as possible on your cash while keeping it safe, then your choice may come down to which type of account pays the higher interest rate.
2. Can you meet the minimum deposit and maintain it?
Let’s say a high-yield savings account pays a higher interest rate than a money market account but requires a $100,000 minimum deposit versus a $25,000 minimum deposit required for the money market. Well, if you don’t have $100,000 to invest, but do have $25,000, then the high-yield savings account isn’t really an option. Or perhaps you do have the money but don’t want to tie it all up in one account. If either of these is the case, then the money market account would make more sense for your needs. Just remember, even if you can meet the minimum initial deposit, you may need to maintain that minimum balance to keep the account open.
3. Do you want more access to your money, including the ability to write checks?
If you want the account to be more transactional, then a money market account may be a better choice for you. If you plan on leaving your money alone for the most part and letting it earn interest, then a high-yield savings account may make more sense. If you’re willing to leave it untouched for a designated time period, then a certificate of deposit may be an even better option.
After realizing he couldn’t pay back his outrageous film school student loans with rejection notices from Hollywood studios, Sean focused his screenwriting skills on scripting corporate videos. Videos led to marketing communications, which led to articles and, before he knew it, Sean was making a living as a writer. He continues to do so today by leveraging his expertise in credit, financial planning, wealth-building, and living your best life for Credit One Bank.
Certificates of deposit (CDs) could be a good investment option if you have a large sum of cash and a short-term savings goal. These federally insured, low-risk investments offer a predictable fixed rate of return and allow you to bypass broker commissions by investing directly with a bank or credit union.
What is a high-yield savings account? As its name suggests, it is a savings account that typically yields more in interest than a standard savings account. Here are eight things to know about a high-yield savings account.
Balancing your investment portfolio can sometimes feel like walking a tightrope. Higher-risk investments may produce greater rewards, but leaning too much into one type of investment could also cause your investment portfolio to take a dive should that investment go south. Depositing some of your money into a cash investment account could help lessen some of your risk, especially if you’re older and looking to transition from riskier to less-risky investments. It’s also a decent move to make if you’re pausing to you get your bearings and want to protect your money and maintain stability as you ponder your next financial move. Just be aware that, in exchange for less risk, cash investments typically offer lower returns than higher-risk investments.