Money Market vs. Basic Savings

When you think of opening a savings account do you go over your options? Do you know what is the difference between a money market account and a basic savings account? Let us break it down to the basics.

First, a money market account is an interest-bearing account, similar to a basic savings account. However, money markets tend to have a higher interest rate earning you more in the long run. In some cases, money market accounts have a minimum balance requirement in order for you to earn interest. Different financial institutions have different privileges that come with their money market accounts. In those accounts, members can benefit more than if they were using a basic savings account.

Basic savings accounts are interest-bearing accounts as well but tend to offer a lower interest rate. These savings accounts are great for when you need to store excess funds for a short term. These accounts are usually free with no minimum balance or maintenance fees. This account is also great for someone who is just starting to save money.


When should you open a Money Market or a Savings Account?

If you have excess cash sitting in one account and you don’t plan on spending it, but you want to keep it easily-accessible, open a money market. By doing so, you can earn extra money with a higher interest rate without setting a term on the account. This will keep the funds liquid, allowing you to have access if necessary. You also want to keep in mind the minimum balance requirement, if you plan on always keeping a high balance, then you will benefit more from a money market account.

If you just want to store excess cash for a short time because you are waiting to purchase something or do some home renovations, open a basic savings account. If you plan on taking the money out soon rather than later, then you wouldn’t really receive the benefit of the money market, meaning the interest rate. So, in this case, it is easier for you to open a basic savings account.

Either way, you should open a savings account of some sort. Whether it be a basic account or a money market. Both accounts allow unlimited deposits, and you can keep the account growing the longer you have it. It is good to have money separate from your operating funds in case of an emergency. It is also a good habit to keep most of your funds separate in the case that your checking accounts ever gets compromised, or fraud occurs. You would want to have an account that is not linked to a checking account.

When you want to open a savings account, have more open conversations with that institution. Go over your needs and wants and so you can open something more beneficial to your financial needs.


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