Money Market Deposit Account Versus Online Savings Account
I was checking out Discover Bank Online Savings which is currently paying 2.0% APY — highest interest rate in my bank rates table. I noticed that Discover Bank also has a Money Market option, which currently pays 1.55% APY. I’ve never paid attention to the difference, but this time I got curious — what’s the difference between a money market deposit account and an online savings account?
What Is The Difference Between Money Market Deposit Account And Online Savings Account?
After reading a few articles, it appears that there are slight differences. The easiest way for me to explain it is to say that money market deposit account is like a hybrid savings and checking account. It pays less interest than an online savings account and requires higher minimum balance. But unlike online savings account, you could write checks directly against the account, or even use a debit card to access your money.
To make it easier to visualize, here’s a table that shows the differences and similarities among a traditional savings account, an online savings account, and a money market deposit account.
| Description | Traditional Savings | Online Savings | Money Market |
|---|---|---|---|
| Minimum balance requirement | Minimal, usually no minimum | Minimal, usually no minimum | Moderate, usually in the thousands |
| Access to Money | Bank teller, ATM, and transfer to checking | ATM and transfer to checking account | ATM, debit card, check writing, and transfer to checking account |
| Withdrawal Limit | Usually none | Up to 6 preauthorized withdrawals | Up to 6 preauthorized withdrawals |
| Interest rate | Lowest among savings products | Highest among savings products | Moderate |
| FDIC Insured | Yes | Yes | Yes |
In the end, I think it’s better to have a high interest savings account linked with a checking account. This allows you to squeeze a bit more out of your savings. In the case of Discover Bank, it’s 0.45% APY more. Of course, the savings-checking combo set up requires a little more discipline. Hmm…I can’t wait until Lending Club start paying interest for uninvested fund and let me write check against it.
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This is exactly the question I have asked several people for awhile. I currently have 2 money market accounts, one for savings and one for my vacation/emergency fund. The interest rates are basically the same as high yield online banks right now so have no reason to make the switch even though a lot of people praise them. The differences seem few, for me I like how it keeps all my bank accounts with the same bank.
@Craig – Thank you. Just make sure that you don’t have more than the FDIC insured amount with any one bank. It’s $250,000 now, but it could go back to $100,000.
Great post! One thing I think is off on your table though: the six withdrawal limit usually applies to traditional savings accounts as well. I don’t know for sure but I believe it is some type of federal banking reg that dictates an account identified as a “savings” account can only permit six withdrawls a month.
The question: What Is The Difference Between Money Market Deposit Account And Online Savings Account? is a hot topic and I think a lot of people don’t know the difference.
Very nice article and explanation.
I’m not sure about Discover Bank’s Money Market account, but usually they are not insured by FDIC. Are you certain about that?
Thanks for making the comparison! I have not put any money into money market accounts in a long time, since internet banks have become so much more competitive.