Money Market Account vs High-Yield Savings Account (2024)

FAQs

Money Market Account vs High-Yield Savings Account? ›

A money market account gives you more access to your money in the form of direct checking and ATM withdrawals, but it will generally provide a lower interest rate. A high-yield savings account pays a much higher interest rate, but you have transfer limits and few, if any, accounts let you directly spend money.

The key difference between the two is that high-yield savings accounts are FDIC-insured, while money market funds are not. However, money market funds are considered very low-risk investments and may even have higher interest rates than high-yield savings accounts.

You can't lose your money because, just like your regular checking and savings accounts, the money is insured by the Federal Deposit Insurance Corporation up to $250,000.

Potential Drawbacks of High-Yield Savings Accounts

They are savings accounts, so they can prove limited in how much they earn over time. They may not be a substitute for riskier investment accounts or relied on solely for larger goals like retirement.

They may come with the ability to pay bills, write checks and make debit card purchases. Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.

Since money market accounts are insured by the FDIC or the NCUA, you cannot lose the money you contribute to the account—even in the event of a bank failure. You can, however, be subject to fees and penalties that reduce your earnings.

What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.

How much of a difference does this make? If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 5.32% APY,* your one-year interest soars to over $2,660.

Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.

All of your high-yield savings account interest is taxable. Your financial institution will send you a Form 1099-INT once you earn more than $10 in interest.

How much will $10,000 make in a money market account? ›

A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs).

The one possible downside of a money market account is that the institution may limit how many withdrawals you can make at a time, usually within a month or year, thus limiting access to your funds.

Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners.

Money market accounts provide access to funds and offer interest rates similar to regular savings accounts. CDs earn more interest over time but have restricted access to funds until maturity. Money market accounts are a better option when you need to withdraw cash.

Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.

The earnings from money market funds can come from interest income or capital gains, so they're taxed the same way as other investment income.

When choosing between placing your money in a high-yield savings account or investing, the best decision for you depends on your goals. High-yield savings accounts are good for short-term savings, like emergency funds, while investing can be better for long-term goals, like retirement.