Money Market Account or Savings Account?

Although you won’t find them at as many banks as you will savings accounts, money market accounts are definitely an option at many of them. If you glance at both briefly, there are some similarities, including that both pay interest and offer liquidity, as well as both being protected by the FDIC, and similar check writing rules.

On the other hand, money market accounts almost always pay a higher interest rate, making them a more attractive option for most savers.

The simple truth is that, when it comes to what they can do with funds that are being saved in a savings account, most financial institutions are extremely limited. That’s one of the reasons that their interest rates on savings accounts are so low. On the other hand, money market accounts offer them a good bit more flexibility, including being able to invest that money into certificates of deposits (CDs), and other safe investments like government bonds. Because of this, most banks are able to offer interest rates on their money market accounts that are higher than savings accounts, so that they can attract savers to put their money in the former rather than the latter.

Although the differences between the two are not extremely significant, one major difference between a savings account and a money market account is that there are restrictions on how often withdrawals can be made. For example, some financial institutions will have a one-week waiting period for taking money out of your money market account, so if you take money out of your savings account regularly when you need it, a money market account might not be a good idea. On the other hand, if you want to make more money in interest and can let your money sit for a longer period of time, a money market account will definitely earn more money for you.

Now, to be sure, neither a savings account or a money market account offers a great interest rate. For example, a savings account probably will offer somewhere around .5% while money market, even though it doubles that, will usually only offer around 1% in interest. That’s not very much and, if you have a significant amount of money, and you won’t need to access it for a long period of time, there are other investment options that will definitely give you better interest rates.

Also, be sure that you don’t confuse a money market deposit accounts with money market funds, especially because money market funds are covered by the FDIC and are quite different from traditional demand deposit accounts.

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