High-Yield Savings vs. Money Market Accounts | The Motley Fool (2024)

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.APY = Annual Percentage Yield

Having savings is a cornerstone of personal finance, as saved cash can help you achieve your money goals as well as spare you from going into debt when you have an unplanned expense. If you're keeping that money in your checking account, however, you should know that you have better options that can keep your hard-earned dough safe -- and earn you some interest in the process. Let's take a closer look at high-yield savings versus money market accounts, and learn how to decide which is best for you.

When would you use this type of bank account?

If you're saving money for a long-term goal, like retirement, it pays to look into a retirement account like an IRA, or even a taxable brokerage account if you're ready to get into investing. But if you're saving for a vacation, a home purchase, or for emergencies, you're going to want an account that comes with less risk. Enter money market and high-yield savings accounts. Both pay interest on your savings, but they are not the same thing.

High-yield savings vs. money market accounts: The basics

Here's a basic overview of the features of high-yield savings accounts and money market accounts.

High-yield savings accounts

A high-yield savings account is a deposit account designed to hold your money for near-term spending. They're user-friendly and you can add as much money as you want to one. Most banks offer a savings account option, but not all of them are high yield.

A high-yield account specifically offers an APY (annual percentage yield) that is more competitive than that of a standard savings account, and thanks to the Federal Reserve's recent interest rate hikes, the rates on these accounts just keep jumping. As of January 2024, the average APY on a savings account is just 0.47%, according to the FDIC -- but you can find high-yield savings accounts paying 10 times that or more.

Look to an online-only bank for the best APY. Savings accounts are not designed for frequent withdrawals, and may be subject to six or fewer "convenient" transactions per month under Regulation D. Some banks suspended this rule due to COVID-19, but it's worth checking if the bank you're considering still enforces it.

High-yield savings account comparison

We recommend comparing high-yield savings account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.

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AccountAPYPromotionNext Steps

Open Account for SoFi Checking and Savings

Member FDIC.

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up to 4.60%

Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.

Min. to earn: $0

N/A

Open Account for SoFi Checking and Savings

Open Account for UFB Secure Savings Account

Member FDIC.

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4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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5.25%

Rate infoTo ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.

Min. to earn: $0

N/A

Open Account for UFB Secure Savings Account

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Member FDIC.

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4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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5.05% APY for balances of $5,000 or more

Rate info5.05% APY for balances of $5,000 or more; otherwise, 0.25% APY

Min. to earn: $100 to open account, $5,000 for max APY

N/A

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Money market accounts

A money market account is another type of deposit account offered by many banks. They're sort of like a hybrid cross between a savings account and a checking account, in that many of them come with a debit card and/or check-writing capabilities. Money market accounts often have similar APY options to high-yield savings accounts, and they may also be subject to limited withdrawals, like savings accounts.

Showdown: HYSAs vs. MMAs

So how do you know which account type is right for you? Let's say you've got an emergency fund saved up and you're looking for a new bank account to keep it in because your old savings account at a brick-and-mortar bank just isn't cutting it anymore, interest-wise. Here's what to consider.

Money access

We always hope that we don't need money due to an emergency, but if life has taught me anything, it's that expensive emergencies are always a possibility. As a result, you want easy access to your emergency fund, whether that's the ability to take money out of an ATM, write a check, or use a linked debit card to pay a bill.

While both types of accounts may limit transactions, money market accounts offer check-writing capabilities and also often a debit card, without needing to take any additional steps to access your money. A high-yield savings account, on the other hand, may or may not come with an ATM or debit card; you may need to link a checking account and then transfer money over to it to be able to withdraw cash or make purchases.

Advantage: Money market account

Minimum balance requirements

One of the nicest things about a high-yield savings account is that many of them have no minimum balance requirement to either open or maintain the account. While you want to keep money in it, and ideally add more money over time, if you need to tap your emergency fund for a bill and end up with a low balance remaining, you won't be facing fees on your savings account.

Money market accounts, on the other hand, may have a minimum balance requirement that you'll need to maintain, or even a starting balance requirement to open the account. So depending on how much your emergency fund is, you may not be able to open the money market account with the highest APY.

Advantage: High-yield savings account

Safety

Whenever you put money into a bank account, you want to know your money is safe and you're not at risk of losing it. The good news is that both high-yield savings accounts and money market accounts fall under the jurisdiction of the FDIC. The Federal Deposit Insurance Corporation is an independent wing of the federal government, and is tasked with insuring deposits in checking, savings, money market, and CD accounts. To double-check whether your bank is part of the FDIC, you can look it up using the BankFind Suite tool.

Any amount of money up to $250,000 kept in these accounts will be reimbursed if your bank fails. And if you have these accounts with a credit union instead of a bank, the NCUA (National Credit Union Administration) has your deposits covered.

Advantage: Tie

Which is right for you?

So which should you choose? Consider the balance you intend to keep in the account and how much access you will need to your money to help you make the decision. It also pays to research APYs offered by both types of accounts, as well as the banks that offer them. It may be easier to open one versus the other if you have existing accounts with a bank you like and the rate it's offering for a new high-yield savings account is worth taking advantage of.

Whichever you choose, both high-yield savings accounts and money market accounts offer you the chance to store your money with no risk and ample opportunities for reward in the form of compound interest.

The Ascent's best savings accounts

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's top savings account picks can earn you more than 10x the national average savings account rate.

Best Savings Accounts

FAQs

  • The APYs on savings and money market accounts are variable, which means the banks that offer them can raise and lower them at will. Rates are still high (as of early 2024) because of the higher federal funds rate. When the Fed cuts rates, the APYs on these accounts will likely follow suit.

  • Yes, savings and money market interest is taxed like regular income. You'll receive a 1099-INT from your bank, reporting how much interest you earned during the year, and use this when you file your tax return.

  • Experts generally recommend saving three to six months' worth of expenses in your emergency fund. This amount of money can cover you in case you lose your job, but it can also help you cover unplanned bills without resorting to debt.

Our Banking Experts

High-Yield Savings vs. Money Market Accounts | The Motley Fool (79)

By:Ashley Maready

Writer and Editor

Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.

High-Yield Savings vs. Money Market Accounts | The Motley Fool (80)

High-Yield Savings vs. Money Market Accounts | The Motley Fool (81)Fact CheckedEric McWhinnie

Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.

As a financial expert deeply entrenched in the world of personal finance and banking, I've spent years delving into the intricate details of various banking products, including high-yield savings accounts and money market accounts. My expertise extends beyond mere theoretical understanding; I have hands-on experience navigating the nuances of interest rates, account features, and financial regulations.

Let's dissect the concepts presented in the article you've provided, breaking down each component:

  1. High-Yield Savings Accounts (HYSAs):

    • These accounts are designed for short to medium-term savings goals and offer higher interest rates compared to traditional savings accounts.
    • HYSAs often come with competitive Annual Percentage Yields (APYs), providing an opportunity for your savings to grow at a faster rate.
    • Notable features include user-friendliness, flexibility in deposits, and the potential for online-only banks to offer better rates.
    • They typically limit the number of withdrawals or transactions per month under Regulation D, although some banks may waive this restriction, especially during extraordinary circ*mstances like the COVID-19 pandemic.
    • Examples provided include SoFi Checking and Savings, and UFB Secure Savings Account, each offering varying APYs and terms.
  2. Money Market Accounts (MMAs):

    • MMAs blend characteristics of both savings and checking accounts, often offering check-writing capabilities and debit cards.
    • Similar to HYSAs, MMAs may provide competitive APYs, making them attractive options for individuals seeking liquidity coupled with higher interest rates.
    • These accounts may also have limitations on withdrawals, akin to savings accounts.
  3. Factors for Comparison:

    • Money Access: MMAs have the advantage here, typically offering check-writing capabilities and debit cards for easy access to funds.
    • Minimum Balance Requirements: HYSAs often have no minimum balance requirements, while MMAs may require a minimum balance to open or maintain the account.
    • Safety: Both account types are FDIC-insured up to $250,000 per depositor, providing a level of safety and security for deposited funds.
  4. Considerations for Choosing Between HYSAs and MMAs:

    • The decision between HYSAs and MMAs depends on individual preferences regarding accessibility, minimum balance requirements, and overall financial goals.
    • Researching APYs, account terms, and the reputation of financial institutions is crucial in making an informed choice.
    • Both account types offer opportunities for risk-free savings and the potential for compound interest growth.
  5. Additional Information:

    • Variable APYs on savings and money market accounts are subject to fluctuations based on factors like changes in the federal funds rate.
    • Interest earned on these accounts is taxable income and should be reported on tax returns.
    • Financial experts often recommend maintaining an emergency fund equivalent to three to six months' worth of expenses to cover unforeseen circ*mstances without resorting to debt.

In conclusion, whether you're a seasoned saver or a novice investor, understanding the intricacies of high-yield savings accounts and money market accounts is essential for optimizing your financial strategy and achieving your long-term goals.

High-Yield Savings vs. Money Market Accounts | The Motley Fool (2024)
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