Choosing a money market or a savings account

Everyone needs to have a smart savings strategy in place to make sure they are going to have money tucked away for their retirement. Considering how many Americans do not have savings accounts anymore, it is important to worry about your financial future and if you will have emergency funds ready to pay for your needs.

Money market and savings accounts are great ways to set aside large or small sums of money and to collect some interest on the money. This money doesn't need to be used for your retirement as it can be your fall back money when bad things happen and you suddenly need $2,000 to pay for medical bills and other things. By setting aside money into a savings account, you will have instant access to it whenever you need it.

What is a money market account?
A money market account is different from a savings account as you are placing money into an account and getting a higher interest rate of return. You have a minimum balance amount to reach when you invest in money market accounts and you normally cannot access the funds for a given time period. Since money market accounts have higher interest rates, you need to meet the certain minimum investment criteria.

What is a savings account?
A savings account is similar to a money market account. You can access the funds at any time and most banks only ask that you keep at least $25 in the savings account at all times to keep it open.These accounts are usually offered from your bank where you already have a checking account open.A savings account offers a very low interest rate as most people deposit and withdraw funds often from the account. A savings account is similar to having cash in your wallet as you can access the funds whenever you need and the rest of the money will be kept safe and waiting for you to use it.

Money Market or Savings Account?
So which is better? Should you have a savings account or a money market account? There are multiple reasons to have both accounts actually as they both offer great benefits for your particular situation. Both accounts offer great benefits; here are few of the pros and cons to investing in both:

• Money markets are longer, allowing you to earn more money in interest. Savings accounts are shorter and liquid so you can get the money as you need it. The small interest on savings won't put away enough money to retire on, but it will leave you with a nice cash reserve for emergency needs.


• A money market account requires a higher minimum balance to keep it open. This is the only way the financial institution can provide you with the promised yield. If you don't have the financial resources to meet the minimum amount, a savings account may be a better idea and it has the great withdraw option.


• Money markets have a limitation on the withdraws you can make, which is unlike the savings accounts. You may have some limitations with a savings account as well because some financial institutions will have fees if you bounce a check and they need to transfer funds from the savings account to cover it.


• Money markets are not meant for individuals wanting to do high transactions. They are able to offer nice interest rates for a deposit but savings accounts are better for growing the money if you leave it in there for longer periods of time. Make it a goal to transfer money with each paycheck to your savings account so you can earn the right type of money you need to pay for emergency needs.