Chequing accounts offer the convenience of managing your money in one account and accessing those funds at your discretion. You can use a checking account to pay bills, transfer money to linked accounts, or make debit purchases. These are also things you can do with a money market account, but there are a few differences. Comparing a money market and checking account can help you decide which one you might need.
You can also consider working with a Financial Advisor to help you make all your banking and investment decisions.
What is a current account?
A current account is a type of current account that you can open in traditional banks, online banks and credit unions. Some brokerages may also offer checking account options to investors. When you open a checking account, you can deposit money into it and use it as needed. Some of the things you can do with a checking account include:
Write paper checks
Use a debit card to make purchases online or in-store
Withdraw money from ATMs with your debit card
Deposit checks via mobile check deposit
Transfer money between linked accounts in the same bank or in different banks
Schedule online bill payments
Direct deposit paycheques, tax refunds and government payments
Send money to friends and family
Having a checking account is a good idea if you want to keep your money accessible without having to carry cash or resort to alternative banking services, such as check cashing companies or prepaid debit cards.
Banks may charge fees for checking accounts, including monthly maintenance fees and overdraft fees. You may also pay fees for certain services, such as paper statements or wire transfers.
Checking accounts are safe when you hold your money at an FDIC member bank. The The FDIC insures checking accounts and other deposit accounts up to $250,000 per depositor, account ownership type and financial institution. The National Credit Union Administration (NCUA) provides similar coverage for checking accounts held at credit unions, also called stock project accounts.
What is a money market account?
A money market account (MMA) is a type of savings account that also shares some characteristics of checking accounts. Like checking accounts, you can find them at traditional banks, credit unions, and online banks.
Here are some of the key features of money market accounts:
Balances may earn interest
Banks may offer checks and/or debit card
Savers are generally limited to six withdrawal transactions per month
Can be linked to checking or savings accounts at the same bank or different banks
Deposits are FDIC or NCUA insured when held at member banks and credit unions
Banks may impose fees for money market accounts and there may be minimum balance requirements to avoid fees or earn interest. If you can earn a higher interest rate with a money market account on a savings account or one certificate of deposit (CD) account depends on the bank.
Money market accounts can earn a flat annual percentage yield (APY) on all balances or rates may be tiered. Jumbo money market accounts may offer the highest rates, for example, although you may need to maintain a balance of $25,000 or more to qualify.
A money market account is not the same as a Money market funds. A money market fund is a type of mutual fund offered to brokerage. When you put money into a money market fund, you’re saving it at low risk. When you buy a money market fund, you are making an investment that involves a higher degree of risk.
Differences Between Money Market and Current Accounts
Money market accounts and checking accounts have some things in common, although they are not the same. Comparing them side by side can make it easier to distinguish between the two.
How to Compare Money Market Accounts and Chequing Accounts Feature Money Market Accounts Chequing Accounts Purpose/Function Money market accounts are savings accounts that allow you to earn interest while providing convenient access to your money Chequing accounts are demand deposit accounts that you can use to pay bills, send money and make purchases Earn interest? Typically, yes Typically, no Unlimited withdrawals? No, you are generally limited to six withdrawals per month Yes, although banks may impose ATM withdrawal limits or limit the number of checks you can write per month Access Banks may offer paper checks and/or or an ATM/debit card for withdrawals or purchases Transactions Banks may offer paper checks and debit cards for withdrawals or purchase transactions. , money transfer to savings
The biggest difference is what you can do with a money market versus a checking account and how often you can access your money. Although you can withdraw from a money market account, your bank may charge an excess withdrawal fee if you make more than six transactions per month. And it’s up to the bank whether to give you paper checks or a debit card or a AT M card to access funds.
Current accounts, on the other hand, are generally not subject to these types of restrictions. The trade-off is that most checking accounts don’t pay interest. However, it is possible to find interest-bearing checking accounts offered in some traditional banks and online banks.
Money market or current account: which is better?
Whether it makes more sense to open a money market account or a checking account depends on your financial goals and needs. If you’re saving money for a down payment on a house, for example, you might want to put it in a high-yield money market account so you can earn interest in the meantime. When you’re ready to put down your down payment, you can write a check or transfer the funds from your money market account.
Checking accounts are better suited for everyday use because there are fewer restrictions on how often you can shop, pay bills, write checks, or withdraw cash. If you’re willing to shop around at different banks, you may be able to find a checking account that offers an interest rate comparable to the money market. Some checking accounts may also offer debit card rewards which reimburse you a percentage of what you spend.
Of course, you can always split the difference and open both a money market and a checking account at the same bank or at different banks. This could be a good option if you want to separate the money you spend day-to-day from the money you plan to spend later. And you can link the two accounts so you can easily move funds between them.
Money market accounts and checking accounts can manage money more easily, although choosing one or the other depends on your needs. You can also use both accounts if your financial situation benefits from opening multiple accounts. When opening a money market or checking account, remember to look at things like interest rates, minimum balance requirements, and monthly fees to find the best banking options.
Checking account advice
Consider discussing with your financial advisor the merits of opening a money market versus a checking account and whether you want to have both. If you don’t already have a financial advisor, finding one doesn’t have to be complicated. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
In addition to money market accounts, you can also consider high yield savings accounts or CD accounts. With a High Yield Savings Account, you can get a competitive APY on your cash and CD accounts to earn interest over a set term. If you want to know who pays the highest APY for savings accounts or CD accounts, online banks are a good place to start looking. Online banks tend to offer savers better rates while charging lower fees, compared to traditional banks or credit unions.
Photo credit: ©iStock.com/AsiaVision, ©iStock.com/Ridofranz, ©iStock.com/SDI Productions