If you’re frustrated with the anemic returns that come with traditional savings accounts, the idea of earning a higher return can be appealing. Many banks and credit unions advertise money market accounts that provide higher annual percentage yields (APYs), but they’re an often misunderstood product.

There's a lot of confusion around if a money market account is a savings account. Although money market accounts share several characteristics with savings accounts, there are some key differences you should be aware of before opening an account.

What is a money market account?

A money market account is another type of deposit account. They are interest-bearing accounts, and often include check-writing privileges. You may be able to make withdrawals with a debit card at an ATM.

Like savings accounts, money market accounts have restrictions on how often you can make withdrawals or transfers; you can usually make no more than six per month.

Money market accounts usually provide higher APYs than savings accounts, so using a money market account could help your money grow faster.

As a type of deposit account, money market accounts are also backed by the FDIC and NCUA up to $250,000.

What is a savings account?

A savings account is a type of account you can open with a bank or credit union. You can use savings accounts to set aside money for a rainy day or to save for a future goal, like a down payment on a dream house.

By stashing money in a savings account, you can earn interest, and your money can grow over time. The trade-off is that you are limited in how many times you can access your account; typically, banks limit you to six monthly withdrawals or transfers.

That restriction means a savings account isn’t a good option for paying bills or covering routine expenses, and you don’t have access to a debit card for ATM withdrawals. Instead, a savings account is meant to be used sparingly so you can save for your goals.

Savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), so deposits are insured up to $250,000.

Key differences between money market and savings accounts

At first, money market accounts can seem interchangeable with savings accounts. But there are some crucial differences you should consider:

• Interest rates: Generally, money market accounts have higher APYs than traditional savings accounts. As of June 13, 2023 – the last available data – the average APY for savings accounts was 0.40%. For money market accounts, the average APY was 0.59%. Over time, the higher rate on money market accounts could help grow your money faster.

• Minimum deposit and balance requirements: Although minimum deposit and balance requirements vary by bank or credit union, money market accounts usually have higher minimums than savings accounts. You can often find savings accounts with $0 minimums, but money market accounts can have minimums as high as $2,500.

• Liquidity and accessibility: Banks usually limit customers to six monthly withdrawals and transfers on both savings and money market accounts. However, accessing your money is often easier with a money market account. Money market accounts allow you to write checks or withdraw money with a debit card, whereas you can only get money out of a savings account by transferring it to another account or by visiting a bank in person and withdrawing it through a teller.

• Fees: When it comes to account fees or monthly maintenance fees, money market accounts tend to be more expensive than savings accounts. Savings accounts usually have low or no fees at all, or you may qualify for a fee waiver if you maintain a certain balance. By contrast, money market accounts usually charge between $5 and $25 per month.

Which account is right for you?

Now that you know the differences between money market accounts and savings accounts, you can decide which account type is best for you. If you’re not sure, consider these scenarios:

You don’t have a lot of money to open an account: Savings

With some money market accounts, you need hundreds or even thousands of dollars available to open an account. Meeting minimum deposit requirements can be challenging for young adults or new savers.

When you want to open a new account quickly but don’t have much cash available, a savings account with low or no minimums may be better than a money market account.

You want to earn the highest APY: Money market account

Money market accounts typically have much higher APYs than savings accounts, so they can make sense for people that want to maximize their savings. Particularly if you have a substantial amount of money to tuck away — such as $25,000 or more — and can qualify for the highest-advertised APYs on money market accounts, your money can grow much faster than if you opted for a savings account.

You don’t want to pay monthly fees: Savings

When you are starting to build an emergency savings fund or save for other goals, seeing monthly fees chip away at your interest can be frustrating. For those that want to keep fees to a minimum, a savings account is usually a better option than a money market account; you can find many banks and credit unions that offer savings accounts with no monthly fees.

You want the ability to withdraw money from an ATM: Money market account

If you want to be able to quickly and easily access your savings in a bind, a money market account likely makes more sense than a savings account. With a money market account, you can take out money by visiting an ATM or by writing a check, whereas savings accounts are more limited.

Savings account vs. money market account: Which is best?

Now that you know that money market accounts are different from savings accounts, you can decide whether money market accounts have a role in your financial plan.

Money market accounts tend to have higher APYs and are more accessible than savings accounts. But on the other hand, they usually have higher deposit minimums and monthly fees.

Which account type makes the most sense depends on your finances and future goals for the money you save. Whatever account type you choose, shop around before choosing a bank or credit union; APYs, account minimums, and monthly fees vary significantly between financial institutions, so taking the time to find the highest APY with the lowest fee can pay off.