Saving money is a common financial goal for most people. Your reasons for saving may fall into several categories, including saving for an emergency, home, car, college, or comfortable retirement. In each of these cases, it may be necessary to open an account to keep money accessible.
You have many options when it comes to keeping your money accessible since there are several different types of savings accounts, including some that earn dividends. A common question many ask is which is better, a money market account or a high-yield savings account. Here’s everything you need to know to select the account that’s right for you.
What’s the Difference Between a Money Market Account vs a HYSA?
Let’s start by exploring each type of account and how they work. They have a lot in common, but there are some important differences you should keep in mind. The differences mostly relate to accessibility and how the money in the account can be accessed.
What Is a Money Market Account?
A money market account is a type of savings account that typically pays a higher interest rate or dividend rate than a traditional savings account. The money in the account is accessible to you, but there may be limitations on certain transactions. For example, you might have a limit on the number of transfers you can make.
One thing that sets some money market accounts apart from a regular savings account is that they can come with checking privileges and a debit card, combining the benefits of a traditional savings account with a checking account. Here again, there are usually limits on the number of checks you can write each month, but having the option of writing a check makes it easy to use the funds in your money market account if you need to.
We should note that a money market account is not the same thing as a money market fund, which is a type of low-risk investment vehicle.
What Is a High-Yield Savings Account?
A high-yield savings account, or HYSA, is a savings account that pays a higher-than-average dividend or interest rate, allowing your money to grow faster. These high-yield accounts have a higher than average APY, or annual percentage yield. In some cases, the rate may be many times higher than what you would earn with a traditional savings account. It’s common for dividends to be tiered based on the balance in the account, but some high-yield accounts pay the same rate for all tiers.
Unlike a money market account, a high-yield savings account is truly a savings account. There are no checking privileges, and you won’t get a debit card. There is usually a minimum deposit required to open an account, and in some cases, you may need to maintain a minimum balance to earn dividends.
There is no minimum balance requirement, no minimum to open, and no balance tiers for the Forward Plus High-Yield Savings Account from Leaders Credit Union.
How Accessible Is My Money in a Money Market Account Versus a HYSA?
One of the most important differences between a money market account and a HYSA is how and when you may access your money. Of course, you always have the option of closing an account, but there are some limitations you should be aware of.
It’s common for a financial institution to impose limitations on transactions for money market accounts. As we mentioned above, some money market accounts come with checks and a debit card. There may be limits on how many checks you can write each month or how often you can use your debit card. There may also be a cap on transfers, although some credit unions and banks allow for unlimited transfers using mobile and online banking.
A HYSA is a savings account and only a savings account. You won’t get checks when you open an account, nor will you have a debit card. If you want to spend the funds in your HYSA, you’ll need to either make a cash withdrawal or transfer funds to a checking account.
The bottom line is that your deposit is more accessible with a money market account than it is with a high-yield savings account. You may be able to write checks and use a debit card, something that’s not possible with a HYSA or any traditional savings account.
What Are Some Common Uses for a Money Market Account or HYSA?
You might be wondering why you would want to open a money market account or HYSA and what you can use the money for. In most cases, the answer is that either account can be useful if you want to keep funds liquid, but here are some common uses for the funds in these accounts:
- Down payment. People who are saving for a down payment on a house often choose a money market account or HYSA because they can get to their savings goal quickly with the higher APYs offered by these accounts.
- Emergency fund. We recommend that everybody have an emergency fund with a minimum three to six months of living expenses in it, but a year’s worth of money is ideal. It makes sense to keep your emergency savings in an account that allows you to access money quickly.
- Retirement savings. While you’ll need to invest money to save enough for retirement, once you reach age 72, you’ll need to take Required Minimum Disbursements (RMDs) from tax-deferred accounts such as traditional IRAs and 401(k) accounts. Putting the funds in a HYSA or money market account allows you to earn money after you withdraw it from your retirement account.
You don’t need to settle for a low APY to keep money liquid.
Can I Have Both Accounts, or Do I Need to Have One or the Other?
Another question we hear often is whether it’s allowable to have both a money market account and a HYSA. The short answer is yes, but you’ll need to decide whether that makes sense for you and your financial circumstances.
As we noted above, it’s common for there to be a minimum amount for qualifying deposits for both accounts, and there’s often a balance minimum to earn interest or dividends. The minimums required vary among financial institutions. For example, some might require a minimum deposit of $25,000 or more to open an account, while others might require a minimum balance of $1,000 or more to earn dividends.
As the account holder, you’ll need to review your options and choose the account that’s best for you. Each option has pros and cons. One thing to consider is FDIC or NCUA insurance, which covers account deposits up to $250,000 per depositor. You can have more than that amount in a single account if you structure your savings appropriately or you may want to consider opening a separate account to protect your money. A financial champion from Leaders or your financial institution should be able to help you structure your savings to maximize your insurability.
We should note that you may want to talk to a financial advisor about your account options and where it makes sense to keep your money.
What Impact Do Economic Changes Have on These Types of Accounts?
Economic conditions can have an impact on the assets in your money market account or HYSA. The most common impact is on your dividend or interest rates, which may change based on economic conditions. Most financial institutions take market conditions into consideration when setting rates. For example, if the economy is good and interest rates are high, you may earn a higher yield on your deposit than you would if interest rates were low. It’s common for rates on savings accounts to be variable.
The only other economic impact you might need to worry about is a bank or credit union failure. Do your research to insure your financial institution is federally insured by the FDIC or NCUA.
How Do I Choose the Right Account for Me?
Now let’s answer the burning question: is a money market account or a HYSA right for you? Here are some questions to ask yourself as you decide:
- How and when do I want to access my money? If you’re comfortable transferring money in order to spend it, a HYSA might be right for you. If you want checking privileges and a debit card, choose a money market account instead.
- How much do I want to keep in my account? Account deposit requirements and minimum balance requirements vary from financial institution to financial institution. You’ll want to consider the account specifications of each option before you decide.
- How much can I earn? HYSAs usually pay a higher APY than traditional savings accounts. In some cases, money market accounts pay more than HYSAs. Here again, you’ll need to compare specific account features and rates to choose the account that’s best for you.
We suggest thinking about what you want the money for and how and when you want to access it before you pick an account. You may also want to talk to your financial advisor about the options and which is most advantageous for your specific circumstances.
Put Your Savings to Work with Leaders Credit Union
For people who want to grow their savings while keeping funds accessible, money market accounts and high-yield savings accounts may be the answer. The information we’ve outlined here will help you understand the differences and determine which account is right for you.
Are you looking for a high-yield savings account with no hoops? Leaders Credit Union is here to help! Learn about our Forward Plus High-Yield Savings Account and open your account today.
If you need additional guidance along your financial journey, consider downloading our free Smart Budgeting Tool Kit.
