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Want to save money for your future? A savings account seems like the obvious choice.
But there’s another option out there called a money market account.It’s like a hybrid between a savings account and a checking account.
If you’ve been debating on opening a savings account or money market account, now might be a good time.
In response to rising inflation, the Federal Reserve said it will increase interest rates in 2022. Both money market and savings accounts are expected to benefit from these higher rates.
In this guide, we break down everything you need to know about these two deposit accounts, from interest rates to withdrawal rules.
What Is a Savings Account?
A savings account is a simple bank account that earns interest. Expect to see rates between 0.01% to 0.07% at traditional banks. High-yield online savings accounts may earn between 0.3% to 0.8%.
You can use a savings account to achieve different financial goals, like creating an emergency fund or saving for a home.
The best savings accounts feature higher rates and no monthly service fees. They also offer low or no minimum balance requirements.
Interest Rate
The average annual percentage yield (APY) for traditional savings accounts is about 0.06%. High-yield savings accounts offer APYs between 0.5% and 0.8%.
The APY is how much interest you earn on your money each year.
- A $5,000 account balance with a 0.05% APY earns $2.50 a year.
- A $5,000 account balance with a 0.5% APY earns $25 a year.
- A $5,000 account balance with a 1.5% APY earns $75 a year.
Accounts offering higher interest rates tend to have higher opening balance requirements. You may need to keep that high balance if you want to avoid paying a fee or earn a higher APY.
Withdrawals and Access to Cash
Every savings account lets you make deposits and withdrawals.
However, a savings account doesn’t provide a separate checkbook to access your money.
That’s likely not a big deal. But it might be if you’re a small…
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