Q: What determines whether I should use a savings account or a money market account?
A: A money market account is a form of savings account, but generally speaking there are two things that distinguish a money market account.
The first is that money market accounts usually have more strings attached than savings accounts, in the form of higher minimum balance requirements and/or more limitations on how frequently you can access your money.
The second thing that distinguishes money market accounts from savings accounts is that money market rates are generally higher than savings account rates. On average these days, money market rates are running about 8 basis points higher than savings account rates, though the gap is larger for so-called "jumbo" deposits -- accounts of $100,000 or more.
If you put those two distinguishing characteristics together, the picture that emerges is that money market accounts are right for large chunks of money that you plan on depositing and leaving alone. If you have a relatively modest sum of money, or plan to have money going in and out of the account several times a month, then a money market account might not be right for you. However, if this is money you view primarily as long-term savings, but which you want to maintain access to just in case, then a money market account sounds like a good fit.
Those generalizations should give you some general guidelines to work with, but ultimately, every account is a little different. You need to shop around, compare money market rates from different banks, and check on the specific restrictions for each account. Assuming you can live with the restrictions, your goal should be to find the highest money market rates you can. After all, the best money market rates these days are running well over a point more than the national average, so shopping around really can pay off.
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