Money market vs. high yield savings account: Which one is right for you?

High-yield savings and money market accounts offer attractive savings benefits. They are a great way to help maintain an emergency fund or help you reach your savings goals. However, while they might sound the same, they offer unique benefits and features. Understanding the differences can help you choose which one will best fit your financial needs and goals.

A high-yield savings account is a deposit account that functions like a traditional savings account but earns interest at much higher rates, often higher than the national average for standard savings accounts. This allows you to grow your savings even faster compared to traditional savings accounts. 

While some high-yield savings accounts require a minimum starting or maintenance balance and limit monthly withdrawals, those offered through Raisin do not. High-yield savings accounts are offered through some standard banks and credit unions and are widely available through online financial institutions.

Money market accounts, or money market deposit accounts (not to be confused with money market funds, which are an investment product), are a different type of high-interest deposit account offered by many banks, credit unions, and online financial institutions. They typically offer higher interest rates than traditional savings accounts, and sometimes even higher than some high-yield savings accounts. These accounts may also come with the added benefit of a debit or bank card and checks, which gives you easier access to your money.

While it may be common for some institutions to require large deposits to open and maintain a money market account, this is not the case at Raisin. The Raisin marketplace only requires a $1 minimum to set up your money market account, giving you access to multiple options with competitive interest rates and flexible features.

While both accounts offer similar benefits, one of the key differences is the hybrid nature of a money market vs. high-yield savings account. Money market accounts may sometimes offer debit or bank cards and checks, making your money more accessible compared to high-yield savings accounts. While this is typically institution-dependent, it is also important to note that both accounts may still have withdrawal limits depending on the institution.

Another significant difference is the amount of capital needed to open a money market account compared to a high-yield savings account. Some money market accounts may require high minimum deposits (e.g., a minimum deposit starting at $10,000), which may not be accessible to new savers.

Raisin’s partner banks and credit unions, however, only require a minimum of $1 to open a high-yield savings account and a money market account through the platform, giving you access to both types of savings products. You can browse through various options with competitive interest rates, all in one place, to help you find what best suits your needs!

To better differentiate the two account types, let's consider the advantages and disadvantages of each one.

• Competitive interest rates: High-yield savings accounts offer strong interest rates, allowing you to make the most of your savings options. Interest rates tend to be higher than traditional savings accounts, and sometimes also exceed those of money market accounts.

• Little to no fees: Since banks also benefit from holding your money, most have relatively low or no monthly maintenance fees. Accounts opened through Raisin, however, have no maintenance fees.

• Low or no minimum balance: Most banks do not require a deposit minimum, allowing you to sign up easily and get started on saving.

• Low risk: High-yield savings accounts are considered a lower-risk way to grow your money compared to stocks and other investment options.

• Fluctuating interest rates: Interest rates may be variable and fluctuate over time, making your returns unpredictable.

• Risk of inflation: Since inflation and interest rates go hand in hand, the returns from high-yield savings accounts might not keep up with inflation, which can potentially erode the purchasing power of your savings in the long run.

• Withdrawal limits: Many accounts have a limited amount of withdrawals you can make per month, which would hinder your access to your money. Accounts opened through Raisin do not have monthly withdrawal limits, so you can access your funds as often or as little as you need.

• Slower growth: Since high-yield savings accounts are considered a low-risk option, their returns are often lower compared to other investment options.

• High interest rates: Money market accounts offer higher interest rates than traditional savings accounts.

• Low risk: Money market accounts are also considered a generally low-risk way to grow your money compared to other investment options.

• Liquidity: Generally offer easier access to your money; some institutions offer checks and debit cards allow you to withdraw money when you need it.

• Interest rate volatility: Like high-yield savings accounts, interest rates on money market accounts are variable, meaning they can stunt your savings’ growth potential when they decrease.

• Balance requirements: Some money market accounts have high minimum balance thresholds, which may make it difficult to get started with or maintain your savings. Accounts on the Raisin platform do not have minimum balance requirements, so you do not have to worry about paying fees if you don’t maintain a certain amount.

• Limited transactions: Historically, these accounts were limited to six transactions per month, which would include debit and checking transactions. Some institutions may still impose a limit, although it is no longer mandated by the Federal Reserve. Exceeding this limit can potentially lead to fees, eroding your returns. Accounts on the Raisin platform do not have transaction limits on money market accounts, giving you more freedom to access your funds.

When choosing between a high-yield savings account vs. money market account, the best choice will depend on your financial goals, as well as accessibility, interest rate, and potential minimum balance requirement. The Raisin marketplace only requires a $1 minimum initial deposit amount for each account, giving you more flexibility to choose what best fits your needs.

Comparing the advantages and disadvantages of the two account types will help you get a clearer understanding of what can help meet your financial needs. Essentially, money market accounts can be ideal for those who want to save at high interest rates but want to maintain easy access to their funds. High-yield savings accounts, on the other hand, may be a better option for those who simply want to focus on high-interest saving without necessarily needing instant access to their funds.

Regardless of which account type you decide on, you can compare interest rates to help ensure you get the best possible returns. You can even take your savings one step further and set up direct deposits to automate your savings and consistently grow your balance. 

Money market and high-yield savings accounts provide excellent options to grow your money without much effort. The Raisin marketplace gives you access to both account types and allows you to compare competitive interest rates to help you choose the best option to meet your needs. Compare interest rates today and start maximizing your savings potential!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.