Money Market Accounts vs Savings Accounts

Posted by Jill on August 16, 2010

Do you know the differences between a savings account and a money market account? Both provide a place for you to stash your money and earn a little interest. But the two types of accounts are not exactly the same thing. Let’s take a look at some of the basics.

Definitions

First of all, you should be aware that there are actually two different types of money market accounts: money market deposit accounts and money market mutual funds. Money market deposit accounts function more like bank savings accounts while money market mutual funds are a type of (very safe) investment.

Account Differences

  • Providers: Almost all banks offer savings accounts as a compliment to their regular checking accounts and many online banks offer savings accounts exclusively. Many banks also offer money market deposit accounts, which may require a higher initial deposit/minimum balance and also pay a higher interest rate. By contrast, money market mutual funds are investments and thus offered by investment companies such as Vanguard.
  • Insurance: Savings accounts and money market deposit accounts are FDIC insured – now up to $250,000. Money market mutual funds are technically not, although they are regulated by the SEC and largely considered risk-free.
  • Deposits: Money market deposit accounts and money market mutual funds may require a minimum deposit of as much as $10,000, whereas savings accounts can usually be opened with as little as $1.00. All three accounts may require you to keep a minimum balance to avoid fees.
  • Withdrawals: Money market accounts usually come with check writing privileges. Savings accounts do not allow check writing but do allow withdrawals or transfers to checking accounts. Both types of accounts may limit the number of withdrawals to 6 per month.
  • Interest rates: Traditional bank savings accounts generally pay less than 0.5% interest, while high interest savings accounts can offer as much as 1.5% right now. Money market mutual funds offer 1-3% traditionally, but are trending closer to the lower end of the range since interest rates are currently so low; some of the highest money market interest rates available right now are through the EverBank $75 Sign Up Bonus.
  • Taxation: All three accounts are taxable. However, some types of money market mutual funds may invest in federal or municipal securities and thus be tax exempt for either state or federal purposes.

Bottom Line

In times of higher interest rates, both types of money market accounts may offer more interest than a savings account. In today’s interest rate environment, that difference is negligible unless you are talking about a very large amount of money or a money market sign up bonus. While money market mutual funds are technically the “least” safe of the three accounts we’ve talked about, all three are very safe options that also offer a good deal of liquidity.





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Comments to Money Market Accounts vs Savings Accounts

  1. Thanks for sharing this information. Very helpful and easy to understand!

    Jenna

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