When saving your hard-earned money, finding the right account is an important step. Ideally, the account you choose should earn interest and offer easy access to your money when it’s needed.

Money market and high-yield savings accounts are two account types that may fit the bill. But which one is the better choice for you? In this article, we'll delve into the question of money market vs. high-yield savings accounts so you can understand how they compare and contrast.

Money Market and High-Yield Savings Accounts - Definitions

First, let's quickly define money market and high-yield savings accounts.

What Are Money Market Accounts?

Money market accounts are deposit accounts offered by many banks and credit unions. Typically, they offer higher interest rates than found with traditional savings accounts. Many banks offer money markets that pay tiered interest rates — the higher your account balance, the higher the interest rate earned.

Usually, when you open a money market account, the bank will issue a debit or bank card that you can use to access cash and make transactions. You may also receive a book of checks to use.

Many money market accounts offer unlimited withdrawals from your account, either in person or through an automated teller machine (ATM). However, your bank may limit the number of debit card transactions and electronic transfers made with your account.

Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum. This means that in the highly unlikely event that your bank fails, your money will be refunded or transferred to a similar account[1].

What Are High-Yield Savings Accounts?

High-yield savings accounts are savings accounts that often pay higher interest rates on deposits than a traditional savings account. They can sometimes pay as much as ten times more than the national average of a traditional account[2].

Upon opening a high-yield savings account, your bank will likely provide an ATM/banking card to withdraw cash. However, the bank may limit the number of fee-free withdrawals that can be made per month.

Like money market accounts, high-yield savings accounts are insured by the FDIC. 

Money Market Vs. High-Yield Savings Accounts - What's The Difference?

Which kind of account is the better choice for you? Let's compare high-yield savings vs. money market accounts to help you decide.

Interest Rates and APY

Banks often advertise savings accounts by both the simple interest rate and the annual percentage yield (APY) — a percentage that informs consumers as to how much interest they would earn in an account over a year. Unlike simple interest rates, APYs take compounding — the process by which you earn interest on both your principal and already accrued interest — and the frequency at which it is done into account. Therefore, a product's advertised APY is usually higher than the simple interest rate.

You can sometimes find higher rates with high-yield savings accounts than with money market accounts. However, many money market accounts offer tiered rates, so if you have a larger amount of money to deposit, you may end up earning more interest with a money market account than with a high-yield savings account.

Minimum Balance and Deposit Requirements

Many high-yield savings accounts have no or low minimum balance requirements to open or maintain an account. That means not having to worry about dipping below the requirement to avoid paying fees or losing interest-earning privileges when making a withdrawal.

On the other hand, it's common for money market accounts to have a minimum balance requirement in place. Your bank may also have minimum requirements for making an initial deposit into a brand-new money market account. Money market accounts may also carry higher maintenance fees than high-yield savings accounts — so it’s important to keep an eye on your balance to ensure it stays above the minimum.

Check Writing and Debit Card Access

Some money market accounts have more stringent requirements than high-yield savings accounts regarding minimum balance and deposit requirements. But as a trade-off, they may offer easier access to your funds.

Many money market accounts come with a debit card/banking card that you can use to make withdrawals at ATMs and bank branches. In addition, money market accounts can also offer account holders check-writing privileges. Although you may receive unlimited fee-free ATM withdrawals of your funds, your bank may limit the number of free transactions you can make with your bank issued card or checks.

However, when you open a high-yield savings account, a bank might limit the number of fee-free withdrawals and transactions you can make (typically, six per month). In addition, you may not receive a bank-issued card or checkbook. To use the money in a savings account to pay for goods and services, you may need to transfer it to a linked checking account first. 

High-Yield Savings Account Vs. Money Market - How To Choose

As you can see, there are differences between high-yield savings accounts and money market accounts. These differences mean that it’s important to make the right choice to ensure your account is right for your unique financial needs. When should you choose a high-yield savings account, and when is a money market account the smarter choice?

When To Opt For A Money Market Account

The easier access to funds that money market accounts often offer may make them a better choice if you need easy access to your money. Because many money market accounts come with check-writing abilities and debit or bank cards, it's relatively easy to pay directly for goods or services. By comparison, with a high-yield savings account, it’s typically necessary to transfer the money to a checking account first. This easier, quick access makes money market accounts a better choice if you’re saving money for an emergency fund.

In addition, money market accounts may be a better choice for individuals saving larger amounts of money due to minimum balance requirements to avoid fees and earn interest. And because many money market accounts offer tiered interest rates, you may earn more from this type of account if you have a sizable amount of money to deposit.

When To Opt For A High-Yield Savings Account

With typically low or no minimum balance requirements, high-yield savings accounts are a better choice for individuals who don't have large account balances. This may make them a better choice for those new to saving.

Plus, because these accounts usually don't offer easy access to funds via a debit or bank card or checks, high-yield savings accounts may prove a better choice if you plan on saving for a long-term goal, such as retirement or a new home.

Alternatives To Money Market and High-Yield Savings Accounts

If neither a money market account nor a high-yield savings account fits your needs, check out these banking alternatives:

  • Checking accounts: Most checking accounts don't earn interest — and those that do typically earn a much lower percentage than what is found with a savings account. However, with a typical checking account, there's no limit to the number of transactions or withdrawals you can make per month. That makes them a smarter choice if you need frequent access to your money and aren't concerned about earning interest.
  • Traditional savings accounts: Not all banks offer high-yield savings accounts or offer them only to people in certain locations. If your bank doesn't offer a high-yield savings account, but you want to save money for the long term, consider a traditional savings account.
  • Certificates of deposit: Many certificates of deposit (CDs) earn interest rates on par with or even greater than what you'd find with a high-yield savings account or money market account. However, in exchange for the relatively high rate, your money will be locked in the account until it reaches maturity. That means you won't be able to withdraw cash without incurring a penalty until the CD matures.

Save Your Way

Ultimately, deciding whether to open a high-yield savings account or a money market account is up to you. Before signing up, be sure to comparison-shop to find an account that offers the best rates and most suitable terms for your situation. Speak with a PNC representative today about all of the available savings options.