Money Fix: Starting to save? Which kind of savings account is best?

You’ve made the commitment to start saving. Your dilemma is where to put your money. Do you choose a savings account or a money market account?

Here’s what to consider.

Understand the differences

You can open either account at a bank. A traditional savings account is an account in which the bank uses the cash you deposit to lend out to others. While both savings and money market accounts have advantages, a traditional savings account is covered up to the FDIC limit of $250,000 per depositor, but a money market isn’t always covered by the FDIC.

Savings accounts usually have no monthly fees or minimum balance requirements. The national average interest rate is just 0.09%, compared to the 1.9%-2.35% found among Bankrate.com’s top-paying money market accounts. Only two of the top eight charged a monthly fee, $10 and $12. Minimum balance requirements varied widely, from zero to $25,000.

“Money markets can be riskier because they may not have FDIC protection,” says Joseph Favorito, managing partner, Landmark Wealth Management in Melville.

Weigh the rewards

Know however, that typically money markets offer higher interest rates than savings accounts. For instance, $10,000 in a money market earning 1% higher than a savings account, will mean an extra $100 a year for you.

With a savings account, the major plus is safety. You won’t lose money.

What matters most to you?

If you’re risk averse, or saving for a short-term, specific goal, go for the savings account.

However, says Edith Muthoni, chief editor at LearnBonds.com, “You’re better off with a money market account if you have the minimum deposit required and seek to save in the medium to long term.”