Ever since the Global Financial Crisis of 2008, the US Federal Reserve kept interest rates at nearly 0% to stimulate the economy. As a result, safe money (cash you held for emergency funds or short-term needs) earned no interest whether that money was in a checking account, savings account, or money market fund.
For so long, there was just no difference between these accounts as far as earning interest, so people seem to have forgotten why they existed in the first place.
Over the past few years inflation and interest rates have gone up so it finally makes sense again to separate your short-term cash into different accounts for different purposes. You can even (gasp!) make money on your savings. Just like the old days.
Here is a refresher on the different types of safe accounts.
Checking accounts…
…are designed for everyday transactions. They typically offer easy access to your funds through debit cards, checks, and online transfers. However, they usually provide little to no interest on your balance.
Savings accounts…
…are meant for storing money you don’t need immediately. They often have withdrawal limitations and offer higher interest rates than checking accounts. As of February 2025, the national average yield on savings accounts is 0.61% APY*.
High-yield savings accounts…
…are similar to regular savings accounts but offer significantly higher interest rates. These accounts can provide APYs of 4% or more, which is nearly 20 times higher than the national average for standard savings accounts. They’re ideal for growing your savings while maintaining easy access to your funds. Many high-yield savings accounts are offered by online banks, which can afford to provide better rates due to lower overhead costs.
Checking, Savings, and High Yield Savings Accounts are FDIC-insured up to $250,000 per depositor, per account ownership type, providing a safe place for your money.
Money markets…
…combine features of both checking and savings accounts. They typically offer higher interest rates than traditional savings accounts, with some providing APYs over 4% as of February 2025**.
Money Markets often come with check-writing privileges and debit card access, making them more flexible than standard savings accounts. However, they may have higher minimum balance requirements and could impose transaction limits.
Be aware of the differences in Money Markets: Money market accounts offered by banks are FDIC insured up to $250,000 per depositor, per insured bank, for each account ownership category. If the bank fails, your funds in an MMA are protected up to this limit.
Money market mutual funds, on the other hand, are not FDIC-insured. These are investment products typically offered by brokerages rather than banks. While they are considered low-risk investments, they do not have the same protections as bank accounts.
Although not FDIC-insured, money market mutual funds do have some protections:
- Securities Investor Protection Corporation (SIPC): This provides protection if the brokerage firm fails, but it does not protect against investment losses.
- Low-risk nature: These funds invest in cash and short-term government securities, which are generally considered very low-risk investments.
Reading all this might make you want to just put your safe money in a shoebox under the bed. Your financial advisor can help you categorize your “safe” money into the appropriate accounts.
*Source: https://www.bankrate.com/banking/what-is-a-high-yield-savings-account/
**Source: https://www.nerdwallet.com/best/banking/savings-accounts
