This Underrated Savings Account With 5% APY Deserves a Closer Look

Do you want to earn a higher yield on your cash savings? Now that the Federal Reserve appears unlikely to cut interest rates in the immediate future, it remains a good time to open a high-yield savings account. Savers have more options for how to earn a return on their cash, whether it's certificates of deposit (CDs) or high-yield savings accounts. But there's another type of savings account that should be on your radar: money market accounts.

According to Bloomberg reporting, during 2023, investors moved a total of over $1 trillion of cash into money market funds -- a type of investment that uses short-term securities like U.S. Treasuries and other government bonds. Money market accounts work in a similar way and are FDIC-insured like a typical bank account.

But many everyday savers might not know about money market accounts or understand how they work. Let's look at a few reasons why the best money market accounts should be part of your financial plans.

Money market accounts: Earn up to 5.30% APY

As of May 14, 2024, the best money market accounts are paying 5.30% annual percentage yield (APY). This means that if you put $10,000 into the account today, after one year, you'd have earned $530 of interest (assuming interest rates stay the same).

Our Picks for the Best High-Yield Savings Accounts of 2024

SoFi Checking and Savings APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC.	APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.	Min. to earn $0
Synchrony Bank High Yield Savings APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC.	APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC	Min. to earn $0
Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0

Money market accounts can often earn higher yields than typical bank savings accounts can because they invest your cash into low-risk, short-term "money market" investments like CDs, government bonds, and other cash equivalents. Your money makes money by being invested in "the money markets" -- but without the risk of loss. You can't lose money with a money market account as long as you keep your investment below $250,000 (the limit covered by FDIC insurance in case of bank failure).

For most everyday people trying to save money and earn a higher yield on their cash, money market accounts can be a great choice. But this type of savings account is often overlooked because people think the only way to earn decent interest is to open a CD.

How to pay bills with money market accounts

Another useful feature of money market accounts is that they typically give you flexible access to your cash. Some money market accounts offer debit cards or check-writing abilities so you can use it to pay for purchases.

Be aware of monthly limits on the number of withdrawals you can make. Many banks might limit you to only six "convenient withdrawals" per month from your money market account or other savings accounts. Money market accounts should not be considered a replacement for a checking account. But if there's a big expense you're saving up for, like a home improvement project or vacation, you could use your money market account to earn high interest while you save up, and then pay the bills directly from that same account.

Are money market accounts better than savings accounts?

When you compare the best money market accounts with the best savings accounts, you might actually get a higher APY with a savings account. The best savings accounts (as of May 11, 2024) are paying up to 5.36% APY. That's 0.06% higher than the best money market account (5.30% APY).

Money market accounts aren't always better than the best savings accounts. But if a money market account will give you a debit card or check writing privileges, and you enjoy having that convenient access to your cash, the money market account could be a better choice even if the APY is the same or slightly lower.

Why choose a money market account instead of a CD?

The best CD rates (up to 5.15% APY as of May 11, 2024) are also competitive with -- and sometimes higher than -- the best money market accounts. And while CD interest rates are fixed (guaranteed for the length of the CD's term), money market rates can go up or down based on changes to interest rates and market conditions.

But CDs force you to lock up your money. You have to commit your deposits for a specific period of time (which could be a few months or multiple years). And if you need to take out your cash sooner than that, you'll owe early withdrawal penalties.

Money market accounts can give you higher APYs than many of the best CDs, but without the commitment and penalties.

Bottom line

Most people have probably heard of CDs and savings accounts, but money market accounts might not be top of mind for everyday savers. That's too bad, as these accounts are worthwhile and underrated.

Money market accounts pay high interest and offer unique features that can give you extra flexibility to access your cash while still enjoying the safety of FDIC insurance. If you want 5.00% APY (or higher) on your savings, consider opening a money market account.