High-interest savings accounts vs. Money market accounts. Which is better for me?
Are you looking to earn more money from your savings? There are many ways to invest your hard-earned cash today. Two popular ones are high-interest savings accounts and money market accounts. Today, we want to make your investment decisions easier by answering if a high yield savings account or a money market account is better for you.
Your savings can help you immensely when you face unforeseen expenses and your future financial goals.
You need to put your savings in a safe place. Somewhere you can access quickly in an emergency and where it can earn some decent interest.
High yield savings accounts and money market accounts are some of the newest ways people invest their savings today. We want to help you answer which is the better option for you.
What is a high-interest savings account?
A high-interest savings account is simply a savings account that earns more interest on your balance than an average savings account. Many are offered only online and often come with limitations on access to your money. Many only allow you to transfer funds six times in a month.
Deposits in high interest-savings accounts are usually FDIC insured up to a specific limit. This means your funds are backed by the government and are guaranteed even if the financial institution happens to go under.
What is a money market account?
A money market account (MMA) is a short-term saving and checking account that generates a variable interest on your balance. The interest rate fluctuates with the actual rate because the bank uses the cash from these accounts for investments (like in a savings account). If there is a higher interest in the reinvestments, the banks receive more interest, and so do you.
Funds in a money market account are usually limited to six withdrawals per month. Withdrawing more than six times will lead to penalties. The FDIC covers the funds in MMAs if they are through a bank. They are protected by the National Credit Union Administration (NCUA) if they are through a credit union. Both FDIC and NCUA cover deposits up to $250,000.
The difference between a high-yield savings account and a money market account
Initial deposit and minimum balance
Money market accounts require a larger deposit to open and a higher minimum balance. Some banks may require an initial deposit of $10,000 or higher. Many also require you to maintain a minimum balance between $500 and $25,000 to get the best annual percentage yield (APY). However, it’s possible to find high-yield savings accounts that require zero initial deposit and low minimum balance.
Money market accounts offer higher returns when compared to high-interest savings accounts. The average MMA interest rate ranges from 0.03% to 2%. This is due to the high minimum balances required and how the bank utilizes your money. High-yield savings accounts typically earn slightly lower interest, around 0.06% to 1% APY.
Access to funds
Though both accounts have limited withdrawals each month, there is a difference in how you access the funds. With a money market account, you’ll have a debit card and checkbook to withdraw your funds.
For a high-interest savings account, you’ll need to transfer the money from your high yield savings account to a checking account or visit the bank in person to make an over-the-counter withdrawal.
Which is better, a high yield savings account or a money market account?
In the long run, both accounts can help you build savings. A money market account offers a higher return on your savings while giving you better access to your funds. In exchange, you need to meet a certain minimum balance.
If you are starting on your savings journey and do not have a lot of money, you may want to start with a savings account. You don’t want penalties for going below the minimum balance.
However, if you have a sizable amount of cash saved, an MMA is probably the better option. Easy access to your money and higher interest rates? What’s not to like?
However, neither account may be right for you today
While both money market accounts and high-yield savings accounts have been a great way to earn on your savings, today they fall painfully short of inflation.
That means even though your money is safe you are losing money in the long term.
If you want to earn your savings safely, you’ll need to look to new alternatives like P2P lending.
Earn 4% APY on your savings today with MyConstant
MyConstant Flex is an investment account that will earn you an interest of 4% APY on your savings through P2P lending.
When you deposit onto MyConstant, your money is placed in a lending pool that borrowers can withdraw from in exchange for collateral. When they pay the pool back with interest, you get a cut. And if they fail to repay, their collateral is sold to cover their debt.
No minimum deposit is required to maintain a Flex account, and there is no fixed term. So, you can make withdrawals anytime to any local bank account or wallet address. Interest is compounded and paid to your account every second and you can see your earnings reflected immediately.
Sounds nice, doesn’t it? Come check us out and see how you can start earning real interest on your savings today.