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High-yield savings account vs. money market account: Which is best for growing your savings?

Kelly Suzan Waggoner
Updated
HYSAs vs. MMAs: How to choose — and leverage high rates (Jordan Lye via Getty Images)

The Federal Reserve's decision this month to hold the benchmark interest rate unchanged at a 23-year high has moved high-yield savings accounts and money market accounts back in the spotlight. Both accounts are safe, stable spots for storing your money and growing your savings — at more than nine times the average 0.45% interest you’d earn with an everyday account.

Among the many similarities shared by these two popular deposit accounts are slight differences that come down to how — and how often — you can access your money. Here's how to compare these two savings options to leverage historically high rates to best fit your budget and financial goals.

A high-yield savings account — commonly called an HYSA — is a deposit account that earns a higher rate of interest on your money than with a traditional savings account. The rate of interest is expressed as the APY, short for annual percentage yield, which is the earnings you can expect on your savings in a year, including compound interest. Generally, the higher your APY, the faster your money can grow.

The interest rate on an HYSA is variable, meaning it fluctuates depending on market conditions, much like a traditional savings account. And while these accounts used to limit withdrawals to six per month, the Federal Reserve suspended that limitation during the pandemic, resulting in flexible access to your money without penalties or fees on most accounts.

You can open a high-yield savings account with most banks and credit unions, though you’ll find today’s highest rates with online or digital banks. These banks partner with in-network ATMs that accept deposits and allow you to link external accounts — an everyday checking or savings account, for instance — for easy electronic transfer of your money.

As with a traditional savings account, your deposits are insured up to $250,000 per depositor, per bank, by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), depending on where you bank.

Many high-yield accounts allow opening deposits as low as $100 — or none at all — though with rates at historic highs, some HYSAs require a high opening deposit to earn the highest advertised APY, so you’ll want to carefully read the fine print when comparing options.

  • High APYs. Earn more than nine times the national average when compared to a traditional savings account.

  • No or low fees. High-yield savings accounts come with few fees and low minimum deposit requirements, making it easy to maintain your account.

  • Federally insured up to $250,000. High-yield savings account deposits are insured by the FDIC or the NCUA for up to $250,000 per person, per account.

  • Not a checking account. While most HYSAs allow you to withdraw or add to your money as needed, you’ll need to transfer money to a checking account for everyday banking.

  • Transfers may not be instant. You may need to wait up to three days for transfers to or from your account to clear, depending on the bank or account.

Dig deeper: Can you lose money in high-yield savings? It's unlikely — but here's what to watch for

A money market account — or MMA — is a savings account that offers a high rate of return on your deposit with the benefits of a checking account, though with limited flexibility. Like a high-yield savings account, the interest you earn with an MMA is expressed as a variable APY, which means it can increase or decrease at any time, depending on the market.

You can open a money market account as you would a traditional or high-yield savings account at most banks and credit unions — and here, too, rates tend to be higher with a digital or online bank. Some MMAs pay different APYs depending on your total account balance through tiered rates — effectively, the higher your balance, the better your rate of return. Depending on the account, you may also be required to maintain a high balance of $2,500 or more to open the account or avoid fees, though you can find accounts without minimum deposits.

A money market account typically comes with a debit card and check-writing capabilities for paying bills, gifting cash and automatic online payments. Some accounts limit withdrawals to six per month, though many others have relaxed restrictions. If there are limitations, they typically don’t apply to in-person or ATM withdrawals, so you’ll want to read your account’s fine print. Most online banks partner with nationwide ATM networks and allow you to link everyday accounts for convenient banking.

Deposits in your MMA are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

  • High rates of return. Strong potential yields are like those of a high-yield savings account — considerably higher than you’ll earn with a traditional savings account.

  • Debit and check-writing privileges. Unlike an HYSA, MMAs tend to offer a debit card and checks, which can be useful for accessing or moving your money.

  • Insured by the FDIC. Money market accounts are insured by the FDIC or NCUA for up to $250,000 per person, per account.

  • May require minimum balance. An MMA may require a minimum account balance to open the account and avoid fees.

  • Earnings may be tiered. Money market accounts often require higher balances to earn the highest advertised rates.

  • Potential withdrawal limits. Some money market accounts limit withdrawals to six a month, which means you might need a traditional checking account for everyday banking.

High-yield savings accounts and money market accounts are deposit accounts that offer more similarities than differences. Both extend significantly higher rates of return than a traditional savings account. And while APYs for MMAs used to beat those of HYSAs, today’s high-rate environment means you can find competitive rates of up to 5% APY and higher, no matter which account you choose — especially when comparing digital or online banks.

An HYSA typically won't require a high minimum opening deposit or high account balances to earn strong yields, though some MMAs do, depending on the bank and the account. Carefully read the terms and conditions before signing up to make sure you can comfortably deposit and maintain any balance required for the highest yields and to avoid fees.

Other differences between these two account types come down to the way you can access your money and how interest is earned. Money market accounts often come with a debit card and allow limited check-writing, which you won’t find with a high-yield savings account. And some MMAs come with tiered interest rates that earn you stronger yields the larger your balance — great for big savers, though something you’ll want to understand before you open an account.

Both of these savings accounts offer a safe, secure way to grow your nest egg without risk. Yet neither are likely to offer the highest returns when compared to riskier investment products like stocks, ETFs and mutual funds.

HYSAs and MMAs are low-risk spots to store your savings and earn competitive yields. Yet you have other options to consider when growing your nest egg — especially while rates are high.

A CD is a type of FDIC-insured deposit account that offers a guaranteed rate of return on your money in exchange for keeping it locked for a set period of time — from three months to five years or longer. Unlike HYSAs and MMAs, which come with variable interest rates that can fluctuate with the market, CD rates are fixed, which means you can benefit from historic earning potential long after today's rates drop.

CDs tend to offer higher rates than an HYSA or MMA, but you typically can’t access your money before the CD's maturity date without incurring an early withdrawal penalty. One way to take advantage of today's high rates with rolling returns is by building a CD ladder into your savings strategy, which staggers CD maturity dates for more financial flexibility.

A high-yield checking account is like an HYSA or MMA in that it offers higher APYs than traditional savings accounts, but it’s also like a more flexible money market account in that it supports unlimited debit and check-writing privileges.

In exchange for high yields, these accounts often require you to maintain a specific daily balance, commit to a minimum number of debit transactions monthly or opt in to e-statements and online banking to earn the highest advertised rates.

While an HYSA or MMA can earn you more on your savings than a traditional account can, stocks, index funds and other investments can potentially yield you a much higher return over time.

Investment platforms and online brokers like TD Ameritrade and Betterment allow you to invest your money in securities and assets that have historically delivered significantly higher returns than savings accounts over the long term. These options carry higher risk, so it's a good idea to talk with a financial advisor or professional before investing money you've tagged for retirement.

Dig deeper: Fixed vs. variable interest rates: How they work

Kelly Suzan Waggoner is personal finance editor at AOL. Before joining AOL, Kelly was managing editor at Bankrate and editor-in-chief at Finder, where she led a team focused on helping people to make unfamiliar financial decisions around banking, lending, credit cards, investments and more. Kelly’s expertise also has been featured in Nasdaq, Lifehacker and other publications. Today, she's dedicated to empowering those planning for, newly entering or fully enjoying retirement to get the most out of their finances — whether that's saving money, managing debt, maximizing rewards or growing their wealth.

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