Money Market vs. High-Yield Savings: What Wins if Fed Hikes Rates?

Savers weighing where to park their cash face a fresh question as the Federal Reserve considers whether to raise interest rates in the coming months. According to the CME Group's FedWatch Tool, there is roughly a 30% chance of a rate hike at the Fed's September meeting and nearly a 45% chance in October.

A rate increase would likely push up yields on both high-yield savings accounts and money market accounts, but experts say the two products respond differently and suit different savers.

Money market accounts generally offer more flexibility, often including a debit card or checkbook and more frequent transactions. "If you want to use the account to manage cash — spend it or move it frequently — in addition to earning yield, then a money market account is likely the best option," said Alastair Wood, CEO of savings marketplace Raisin. A'jha Tucker, product manager of deposit growth at Georgia's Own Credit Union, said such accounts may suit "someone who wants to earn interest while maintaining on-demand access to their funds."

High-yield savings accounts, by contrast, tend to offer somewhat higher rates because they lack the transactional features of money market accounts. "Usually the interest rate offered on money market accounts is lower than the interest rate on high-yield savings accounts," Wood said, noting they function more like "a hybrid between a checking account and a savings account." High-yield savings accounts also typically have lower minimum balance requirements, though Tucker cautioned that money market accounts "can require higher minimum balances to earn the best rates."

Certificates of deposit and CD ladders are another option for locking in guaranteed rates. Regardless of which product savers choose, experts advise against trying to time a decision around a Fed meeting. "I wouldn't try to time opening an account around a Fed decision," said Steve Juodawlkis, director of deposit and non-interest income product strategy at PSECU. "If your savings are sitting in an account earning very little today, compare what is available now. Then, keep an eye on your rate if the Fed makes a move."