Types of Savings Accounts: How to Choose Between Basic and Money Market Savings
You have some money to put in the bank. But there are a few different types of savings accounts, so which should you choose? The answer depends on your goals and how much you have to deposit. If you’re planning to put a large amount in the bank and maintain a high balance, you will likely benefit from a money market savings account. Otherwise, a basic savings account might make the most sense.
What Is a Money Market Savings Account?
A money market savings account pays a higher rate of interest than a basic savings account. Banks usually require a higher minimum balance for this type of account, and there may be higher fees associated with the account, too. Like a basic savings accounts, money market savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), so you enjoy the same security you do with other savings accounts. And unlike with a basic savings account, you can write checks from a money market savings account - though the Federal Reserve restricts this to six checks or transfers out of the account per month, as Bankrate states.
When a Basic Savings Account Is the Right Choice
Compared to money market savings accounts, basic accounts usually have minimum balances and fees. Savings accounts are also more likely to waive fees if you set up a monthly transfer into the account. Of these two types of savings accounts, the basic account is the better choice for people who are starting off with a smaller amount of savings or who intend to have a lower balance. For example, suppose you have $5,000 to save, but you plan to take out $2,000 in a few months to spend on a vacation. If your bank’s money market savings account sets a minimum balance of $5,000, it’s probably not worth it to open the money market account because you’re not planning to keep that higher balance long term. Understanding potential fees is very important as they can offset any interest you may earn on the account.
When a Money Market Savings Account Is the Better Option
If you can meet the minimum deposit and the minimum balance, then you’re usually better off with a money market savings account. For example, if the account’s minimum deposit is $5,000 and you have $5,000 that you’re saving for your first home - and don’t plan on withdrawing it for a year or more - then putting the funds in a money market savings account will yield you more interest earnings.
So to decide which type of account makes the most sense for you, review your current situation as well as your future financial goals. Whichever you choose, saving in one form or another will only help get you where you want to go.