Choosing between a money market account and a regular savings account often comes down to timing. Daren Blonski, our Managing Principal, walked through the tradeoffs for U.S. News & World Report's article, "Why a Money Market Account May Be a Better Choice Than a Savings Account". As Daren explained, in certain markets, money market accounts can be a better option for accumulating cashlike assets than a traditional savings account, since money market rates tend to be more market-rate sensitive. When interest rates rise, money market accounts also tend to increase, so you get the benefit of interest rates going up.
Key Takeaways
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Money market accounts often pay more than traditional savings accounts, especially when interest rates are rising.
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Rates on money market accounts tend to track the broader market more closely, so gains can arrive faster than they would in a standard savings account.
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Money market accounts usually require a higher minimum balance and cap withdrawals at six per month under federal rules, so they work best for cashlike savings, not everyday spending.
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Neither account type replaces a 401(k) or IRA for retirement or long-term goals like college tuition, since the interest earned is taxed and returns are typically lower.
This kind of day-to-day savings strategy is part of the bigger financial planning picture. See our Financial Planning services to learn how we help clients build the right mix of short-term and long-term accounts.