Money Market vs High-Yield Savings Account

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.

What is a Money Market Account?

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.

What is a High-Yield Savings 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.

Similarities Between Money Market Accounts and High-Yield Savings Accounts

These two types of accounts are, in fact, quite similar. The things they have in common include but are not limited to:

• Both typically pay higher rates than traditional savings accounts. How much interest the account actually pays is up to the account issuer. But it will almost certainly be more than what you can expect to earn with a traditional savings account.
• Both typically require significant minimum deposits. Unlike traditional savings accounts, which may be opened for no minimum deposit amount or a low amount, say $25, money market accounts and high-yield savings accounts generally require a substantial initial deposit that could range from hundreds to hundreds of thousands of dollars.  
• Both typically require you to maintain a minimum balance. Even after you’ve made your initial deposit into these accounts, you may be required to maintain a minimum balance. Let’s say it takes a $25,000 initial deposit to open either of these accounts and you are required to keep the balance no lower than $25,000. If you wanted to withdraw $5,000 from either account, you would need to have at least a $30,000 balance. Dropping below the minimum-balance requirement could result in fines or even closure of the account.
• Both are federally insured. Just like traditional savings accounts, MMAs and high-yield savings accounts are insured by the federal government, so your money is safe up to specified limits. If the account is through a bank, it is insured for up to $250,000 per account owner, per insured bank by the Federal Deposit Insurance Corporation (FDIC). If the account is through a credit union, it is insured for up to $250,000 per account owner, per insured credit union by the National Credit Union Share Insurance Fund (NCUSIF).
• Both may charge maintenance fees and/or transaction fees and penalties. There may be an associated monthly maintenance fee for either of these accounts. There may also be transactional fees, such as a fee for making a transfer, or penalties, such as a fee for dropping below the minimum required balance. 

Differences Between Money Market Accounts and High-Yield Savings Accounts

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:

• Money market accounts allow you to write checks and make withdrawals and transfers. With a money market account, you can write checks on the account, just like with a standard checking account. However, the number of transactions—withdrawals and transfers (not deposits)—is limited to six (6) per month per the Federal Reserve Board’s Regulation D. Money market accounts typically come with a checkbook and debit card.
  
  High-yield savings accounts are also subject to Regulation D for withdrawals and transfers. Because these types of accounts are not checking accounts and are not designed to be everyday transactional accounts, they don’t allow you to write checks and typically do not come with a debit card.
  
  As mentioned, even though you’re allowed to make withdrawals and conduct certain transactions with both types of accounts, there may be associated fees for doing so. 

So, is a Money Market Account or a High-Yield Savings Account Right for You?

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.