Money market and high-yield savings accounts allow you to save your excess business funds while earning interest. The major difference between money market and high-yield savings accounts is that money market accounts (MMAs) allow you to write checks while high-yield savings accounts don’t offer this function. Understanding the similarities and differences between these accounts will help you decide which one works best for your business.
When to Use an MMA
Business owners who want to earn an annual percentage yield (APY) from their deposits and need the functionality of both a savings and checking account should consider opening a money market account. It’s best to use an MMA if you can make the initial deposit requirement, maintain a high minimum balance, and need to write a few checks per month. MMAs typically offer interest rates that range between 0.01% to 0.75%, with tiers based on account balance.
| PROS | CONS |
|---|---|
| Safe and secured | Limitations on checks and withdrawals |
| Earns interest | Monthly fees |
| Works like both savings and checking accounts | Typically requires high maintaining balance |
When to Use a High-yield Savings Account
A high-yield savings account is a terrific option if you need to build a business emergency fund, if you need to save for a short to medium-term goal, or an upcoming business expense. High-yield savings accounts work like a regular savings account, except that they usually come with higher minimum balance requirements and better interest rates that could go as high as 0.80% or even higher, depending on the bank. Use a high-yield savings account if you prefer online banking and need access to your business funds. Unlike certificates of deposit (CDs) that don’t allow partial withdrawals, you can typically make up to six withdrawals per month with high-yield savings accounts.
| PROS | CONS |
|---|---|
| Offers better APY compared to regular savings accounts | Rates are variable and can fluctuate |
| Safe and secured | Typically available in an online-only bank |
| Accessible | Withdrawal limits |
Similarities of Money Market & High-yield Savings Accounts
Both money markets and high-yield savings accounts offer a secure place to save and grow your business funds. These accounts are federally insured when you open your account at a bank that’s covered by Federal Deposit Insurance Corporation (FDIC) insurance. Money market and high-yield savings accounts offer APYs that are typically higher than traditional savings accounts. They also both require higher maintaining balances and typically limit transactions and withdrawals.
Due to the pandemic, the Federal Reserve Board has removed the transaction limitations on savings instruments. This amendment currently allows an unlimited number of withdrawals or deposits from money market accounts and savings accounts.
Differences Between Money Market & High-yield Savings Accounts
Money market accounts and high-yield savings are structured differently. With an MMA, depositors can order and write a few checks per month. MMAs work like both savings and checking accounts. However, high-yield savings accounts are just savings accounts that earn higher interest rates—they don’t provide you with the ability to write checks.
MMA vs High-yield Savings Comparison
Money Market | High-Yield Savings Account | |
|---|---|---|
APY | 0.01% to 0.75%, with tiers based on account balance | Up to 0.80% |
Account Fees | $5 to $20 | $0 to $5 |
Deposits | No limit for cash deposits | No limit for cash deposits |
Withdrawals | Typically up to six transfers/withdrawals; however, the Federal Reserve Board amended the interim final rule to allow an unlimited amount of withdrawals and deposits from money market and savings deposits due to the pandemic | Typically up to six transfers/withdrawals; however, the Federal Reserve Board amended the interim final rule to allow an unlimited amount of withdrawals and deposits from money market and savings deposits due to the pandemic |
Check Writing Ability | Yes | No |
Eligibility Requirements | Business and personal documents | Business and personal documents |
Money market and high-yield savings accounts offer interest based on your balance, which can also vary depending on the bank. For example, a bank will pay an APY of 0.15% for MMA balances of $1,000 or lower. For balances between $1,000 to $10,000, an MMA earns an APY of 0.25%. The APY increases to 0.30% for balances above $10,000. The tiers and their corresponding interest rates vary from bank to bank.
Please note that both money market and high-yield savings accounts require a high maintaining balance to earn interest. MMAs typically charge higher monthly fees than high-yield savings. However, most banks offer ways to avoid these fees. The best account that will earn the most for your business is the one that will offer you the best APY on your balance at a lower cost. Make sure to shop around and compare rates and fees to help you decide which account will help maximize your business’s earning potential.
High-yield Savings vs Regular Savings Account
A high-yield savings account is almost exactly the same as a regular business savings account. Both types of savings accounts are federally insured, can be used as an emergency fund, and are typically accessible. The only major difference is that a high-yield savings account offers a higher interest rate on your deposit compared to the interest offered on a regular savings account. High-yield savings accounts also require that you maintain a higher balance to earn interest. It’s important to understand the terms and conditions when you open a business bank account.
Bottom Line
Money market and high-yield savings accounts are excellent options if you want to earn better interest on your savings. Although both accounts currently offer similar interest rates, they provide different functions and have certain limitations. Knowing how each account works and how they differ from one another will help you choose the one that’s a better fit for your business.
