High-Yield Savings vs. Money Market
There are a ton of investment vehicles and savings products that you could consider pursuing; unfortunately, it’s often difficult to narrow down which one works best for your preferences. So, let's take a look.
High-Yield Savings Accounts
A high-yield savings account is a type of savings account that offers a higher interest rate than your traditional savings account would. Generally, these accounts are offered by most banks and credit unions, offering you some significant flexibility in potentially opening the account. With the higher interest rates, you will be able to grow your money faster while still maintaining the safety of a bank that is insured by the FDIC.
Let’s break down some core pros and cons of opening a high-yield savings account as your savings investment account and vehicle.
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Pros
- Offer higher interest rates than a traditional savings account, with up to 4-5% interest rates.
- Easily withdraw or transfer funds from your account without any restrictions or penalties.
- FDIC insured for up to $250,000 per bank.
- Easily accessible through online banks, allowing you to open an account and save without ever having to go in person.
- Minimal or zero monthly fees on your account.
Cons
- Using an online bank does not offer the comfort of walking into a brick-and-mortar branch in the case of issues.
- Some parties offering high-yield savings accounts cap the maximum amount of monthly withdrawals to 6 transactions.
- The interest rates are variable, meaning your earnings fluctuate with the conditions of the market.
- Return on your money is minimal and doesn’t compete with things like stock or index investing.
Money Market Accounts
A money market account is pretty similar to a high-yield savings account – it’s also a savings account that offers a higher interest rate than your traditional savings account. With that said, though, money market accounts often provide features of checking accounts like limited check-writing privileges or possibly debit card access.
Like a high-yield savings account, money market accounts are offered by banks and credit unions, both of which are insured accordingly. Essentially, a money market account could be viewed as a more accessible or flexible high-yield savings account for you to use!
Pros
- Competitive interest rates are higher than your traditional savings account that you would have.
- Check-writing or debit card access is often provided, adding more flexible spending of the money within the account.
- Insured up to $250k, just like high-yield savings accounts.
Cons
- Typically, these accounts require higher minimum balances or you will be forced to pay a fee monthly.
- Regulation limits restricting account owners from making too many withdrawals per month.
- Often have higher (or more) fees than a high-yield savings account.
While each account is similar, they also have their own unique advantages and benefits that the other one does not. Let’s jump into the pros and cons of each, followed by a brief comparison of the two in hopes of helping you decide exactly which type of savings account will work best for you.
Based on the analysis, you should be able to narrow down which one is most suitable for you!
Which is Best for You?
So, the million-dollar question: which one is better for you to have? Well, it comes down to your own circumstances and preferences. Generally speaking, both account types are pretty comparable and really do not have too many differences – you will be just fine selecting either one.
But for those of you who are more attentive to your personal finances and want to make the best decision for you, here are a few things to consider.
- How much money do you plan on depositing?
- How accessible do you want your liquidity?
- Do you need more restrictions to minimize your spending?
- How important is the interest rate you earn?
These are just some things to consider when looking at whether or not you open a high-yield savings account or a money market account. For example; if you have a relatively low amount of money to deposit and save, you are better off opening a high-yield savings account as a money market might have a required minimum balance.
If you’re looking for more accessibility and tiered savings based on a relatively large sum of savings, you are better off opening a money market account instead.
Everything is certainly situational and dependent on your needs and preferences. Regardless, though, there is no doubt that both of these account types are excellent tools to build up your savings and earn some interest along the way.
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