Money market vs. high-yield savings account: Which will be better if the Fed raises interest rates?

Interest rates on interest-bearing deposit accounts have been decent lately, though they're nowhere near the highs seen just a few years ago. In turn, there are lots of opportunities for savers to maximize the returns on their money.

That could change, though, as the Federal Reserve may be eyeing an interest rate hike in the near future. In fact, according to the CME Group's FedWatch Tool, there's about a 30% chance the Fed increases rates at its September meeting, and a nearly 45% chance in October.

A Fed rate hike could boost interest rates on savings products, including high-yield savings accounts and money market accounts. But which account type would be better if you want to see those most benefit from future Fed moves? Here's what experts say. 

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Why a money market account could be better before a Fed rate hike (and why)

The primary difference between money market accounts and high-yield savings accounts is how accessible your funds are. With a high-yield savings account, you're typically limited in how (and how often) you can withdraw from your account. 

With money market accounts, though, there's usually more flexibility. You may be allowed more account transactions on a monthly basis, and you will usually get a debit card or checkbook for the account as well.

"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," says Alastair Wood, CEO of savings marketplace Raisin.

That can be a big benefit if the Fed raises rates, because if it does, that likely means inflation (and consumer prices) are rising as well. If you have a money market account under these circumstances, you'd then be able to earn interest on and access your funds, which could make it easier to cope with those rising prices.

"It may be the better option for someone who wants to earn interest while maintaining on-demand access to their funds," A'jha Tucker, product manager of deposit growth at Georgia's Own Credit Union, says. 

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Why a high-yield savings account could be better before a Fed rate hike (and why)

On the other hand, a high-yield savings account is generally your best bet if you want to feel the biggest impact from any Fed rate changes. While rates on both high-yield savings accounts and money market accounts will adjust shortly after a rate move, high-yield savings account rates tend to be slightly better overall.

"Usually the interest rate offered on money market accounts is lower than the interest rate on high-yield savings accounts," Wood says. "This is because money market accounts generally have transactional features, such as debit cards and checks, that high-yield savings accounts do not. You can think of a money market account as a hybrid between a checking account and a savings account."

Another reason savers may want to opt for a high-yield savings account in today's market is their lower barrier to entry. Many money market accounts have high opening and minimum balance requirements, and there can also be fees and other costs that eat into the interest you earn.

Tucker says it's also important to note, though, that "they can require higher minimum balances to earn the best rates."

The bottom line

High-yield savings accounts and money market accounts aren't your only options if you want to capitalize on potentially rising interest rates. A certificate of deposit (CD) could be a good solution, too, as these allow you to lock in a high interest rate and earn guaranteed interest. You can also use a CD ladder strategy, which spreads your money across several terms, allowing you to buy into new CDs — ideally at higher interest rates — once others mature.

If you do opt for a high-yield savings or money market account, experts say it's important to do two things: Shop around for your bank and put that cash in savings as soon as possible.

"I wouldn't try to time opening an account around a Fed decision," says 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. You want your savings earning a competitive return while remaining accessible when you need them."