If you’re looking for a safe place to park your cash, you might be wondering whether a high-yield savings account or a money market account is the better option. Both types of accounts offer FDIC insurance and relatively low risk, but there are some key differences to consider before you decide which is right for you.
High-Yield Savings Accounts vs. Money Market Accounts: An Overview
A high-yield savings account is a type of savings account that offers a higher interest rate than a traditional savings account. These accounts are FDIC insured up to $250,000 per depositor, just like traditional savings accounts.
Money market accounts (MMAs) are also FDIC insured and offer many of the same features as savings accounts, including check-writing privileges and ATM access. However, there are some key differences between these two types of accounts. MMAs typically require a higher minimum balance than savings accounts, and they may also limit the number of transactions you can make each month. In exchange for these restrictions, MMAs offer higher interest rates than savings accounts.
Comparing Interest Rates
One of the biggest differences between high-yield savings accounts and money market accounts is the interest rate. As the name implies, high-yield savings account offer higher rates than traditional savings account. For example, as of November 2022, the average APY on a high-yield savings account was 2.5%, while the average APY on a traditional savings account was just 0.5%. That means if you have $10,000 in a high-yield account, you’ll earn $60 in interest over the course of a year. In contrast, if you have that same $10,000 in a traditional savings account, you’ll only earn $5 in interest over the course of the year.
The average MMA APY was 2% as of November 2022.
So which is better—a high yield savings account or an MMA? It depends on your needs and goals. If you’re looking for somewhere to park your cash that’s safe and offers easy access to your funds, either one could be a good choice. However, if you’re looking for the highest possible interest rate on your cash, an High-Yield Savings Account is usually the better option. Just be sure to compare rates from multiple banks before deciding where to open an account so that you can get the best deal possible.”